Eagle Materials Reports Fourth Quarter and Fiscal Year 2020 Results

Eagle Materials Inc. (NYSE: EXP) today reported financial results for fiscal year 2020 and the fiscal fourth quarter ended March 31, 2020. Notable items for the fiscal year and quarter are highlighted below. (Unless otherwise noted, all comparisons are with the prior fiscal year or prior year’s fiscal fourth quarter, as applicable.)

Full Year Fiscal 2020 Results

• Record revenue of $1.5 billion, up 4%
• Net earnings per diluted share of $1.68, up 14%
  • Net earnings benefitted by $31.7 million from the carryback of net operating losses to prior years, as allowed under the CARES Act
• Adjusted net earnings per diluted share of $5.57, up 10%
  • Adjusted net earnings per diluted share is a non-GAAP financial measure calculated by excluding non-routine items in the manner described in Attachment 6
• Net earnings of $70.9 million, up 3%
• Adjusted EBITDA of $471.5 million, up 1%
  • Adjusted EBITDA is a non-GAAP financial measure calculated by excluding non-routine items and non-cash expenses in the manner described in Attachment 6

Fourth Quarter Fiscal 2020 Results

• Record revenue of $315.4 million, up 11%
• Net earnings per diluted share of $1.74, up from a loss of $2.82 in the prior year
  • Net earnings benefitted by $31.7 million from the carryback of net operating losses to prior years, as allowed under the CARES Act
• Adjusted net earnings per diluted share of $1.28, up 45%
  • Adjusted net earnings per diluted share is a non-GAAP financial measure calculated by excluding non-routine items in the manner described in Attachment 6
• Net earnings of $72.4 million, up from a loss of $127.8 million in the prior year
• Adjusted EBITDA of $103.4 million, up 14%
  • Adjusted EBITDA is a non-GAAP financial measure calculated by excluding non-routine items and non-cash expenses in the manner described in Attachment 6

On March 6, 2020, Eagle completed its acquisition of substantially all of the assets of Kosmos Cement Company (the “Kosmos Acquisition”) (a joint venture between Cemex S.A.B. de C.V. and Buzzi Unicem S.p.A), which includes a cement plant in Louisville, Kentucky with annual capacity of 1.7 million tons, as well as seven distribution terminals and substantial raw-material reserves (the “Kosmos Cement Business”). The purchase price paid by Eagle in the Kosmos Acquisition was $665 million in cash, subject to a customary post-closing inventory adjustment. Eagle used cash on-hand, along with borrowings under a new term loan facility, to fund the purchase. The results of operations of the Kosmos Cement Business are included in the results disclosed in this press release for the period from March 6 through March 31, 2020. For information regarding the results of operations for the Kosmos Cement Business for certain periods prior to the Kosmos Acquisition, including pro forma financial information that combines the results of operations of the Company and Kosmos Cement Company, please see our Form 8-K/A filed with the SEC on May 12, 2020.

Michael Haack, President and Chief Executive Officer, commented, “In the face of the COVID-19 pandemic, our management team is focused first and foremost on protecting the safety and health of our employees, customers, and business partners. We’ve generally been deemed an essential business, and as we continue operations, we are enforcing health and safety protocols that meet or exceed CDC guidelines.”

Commenting on the financial results, Mr. Haack said, “Having achieved record results in fiscal 2020, we entered this crisis period in a strong financial position, and we are taking prudent actions to sustain the financial health of our business. In light of the risks posed by the COVID-19 pandemic and its possible future effects on our business, we are managing our balance sheet and cash flow for stability today and in the future. We are limiting capital spending to critical projects only, managing inventory levels to improve working capital, and taking additional steps such as suspending share repurchases and future dividends to maximize free cashflow. The sale of our concrete and aggregates business in Northern California announced on April 17, coupled with the carryback treatment of our net operating loss, will increase our near-term liquidity considerably.”

Mr. Haack concluded, “I want to thank our dedicated employees for their extraordinary efforts and focus during this unprecedented time. We have a long history of managing through challenging market conditions, and I am confident we will successfully navigate through this difficult period.”

Segment Results

Heavy Materials: Cement, Concrete and Aggregates

Fiscal 2020 revenue in the Heavy Materials sector, which includes Cement, Concrete and Aggregates, and joint venture and intersegment Cement revenue, was $933.3 million, a 17% increase. Heavy Materials annual operating earnings increased 12% to $198.9 million, primarily because of higher sales volume and net sales prices.

Fiscal 2020 Cement revenue, including joint venture and intersegment revenue, was up 15% to $752.0 million, and Cement operating earnings increased 10% to $181.3 million. The annual revenue and earnings improvement reflect higher net sales prices and sales volume partially offset by expenses related to the Kosmos Acquisition. The Kosmos Cement Business contributed $7.9 million to revenue since the closing of the acquisition on March 6, 2020. The average annual net sales price improved 2% to $109.96 per ton. The inclusion of the Kosmos Cement Business did not materially impact our annual average price per ton. Cement sales volume for the year was up 11% to a record 5.9 million tons. Excluding sales volume from the Kosmos Cement Business, annual Cement sales volume increased 10%. Cement operating earnings were negatively impacted by expenses of approximately $6.8 million associated with the annual maintenance outage at the Kosmos Cement Business and the impact of purchase accounting on inventory costs.

Cement revenue for the quarter, including joint venture and intersegment revenue, was up 30% to $146.6 million. Operating earnings increased 8% to $24.5 million. The quarterly revenue and earnings improvements were primarily due to higher sales volume and net sales prices, partially offset by expenses related to the Kosmos Acquisition. The Kosmos Cement Business contributed $7.9 million to fourth quarter revenue. The average net sales price for the quarter increased 2% to $111.09 per ton. The inclusion of the Kosmos Cement Business did not materially impact our quarterly average price per ton. Cement sales volume for the quarter was up 25% to a record 1.2 million tons. Excluding sales volume from the Kosmos Cement Business, quarterly cement sales volume improved 18% to 1.1 million tons. Cement operating earnings were affected by expenses of approximately $6.8 million associated with the annual maintenance outage at the Kosmos Cement Business and the impact of purchase accounting on inventory costs.

Fiscal 2020 revenue from Concrete and Aggregates increased 31% to $181.3 million. Concrete and Aggregates reported fiscal 2020 operating earnings of $17.6 million, up 36%, reflecting improved sales volume and pricing as well as the financial results of a concrete and aggregates business Eagle acquired in August 2019.

Concrete and Aggregates revenue for the quarter was $39.5 million, an increase of 39%. Fourth quarter operating earnings were $2.5 million, a 13% increase, reflecting improved sales volume and pricing as well as the financial results of a concrete and aggregates business Eagle acquired in August 2019.

Light Materials: Gypsum Wallboard and Paperboard

Revenue in the Light Materials sector, which includes Gypsum Wallboard and Paperboard, declined 4% to $605.8 million for fiscal 2020. Operating earnings were $189.6 million, a decrease of 12%, as improved sales volume was offset by lower pricing.

Gypsum Wallboard and Paperboard revenue for the fourth quarter totaled $151.2 million, a 2% decrease. Gypsum Wallboard sales volume of 684 million square feet (MMSF) improved by approximately 4%, but this improvement was offset by a 6% decline in the average net sales price in the quarter to $146.62 per MSF.

The average Paperboard net sales price for the fourth quarter was $457.13 per ton, down 14%, primarily because of the pricing provisions in our long-term sales agreements. Paperboard sales volume for the quarter increased 4% to 79,000 tons.

Gypsum Wallboard and Paperboard reported fourth quarter operating earnings of $45.7 million, a decline of 9%, due primarily to lower net sales prices and increased costs associated with the papermill expansion, partially offset by improved sales volume and lower operating costs. In connection with the expansion of our papermill, we had an extended outage during the quarter to install new operating equipment. This outage reduced production and led to increased costs of approximately $3 million during the quarter.

Oil and Gas Proppants

Eagle’s Oil and Gas Proppants segment reported fiscal 2020 revenue of $46.8 million, down 44%, primarily reflecting a 20% decline in sales volume. The fiscal 2020 operating loss was $14.6 million compared with an operating loss of $28.7 million in the prior year.

Revenue for this segment in the fourth quarter was down 42% to $10.2 million, reflecting a 32% decline in sales volume. Market conditions in this segment deteriorated in the latter part of March and into April, given the pronounced decline in oil and gas prices beginning in March 2020 and the resulting slowdown in drilling and fracturing activity.

In the fourth quarter of fiscal 2020, the Company completed the disposition of its Wildcat Minerals distribution business, and we continue to pursue alternatives for the remaining Oil and Gas Proppants business.

Planned Separation of Heavy Materials and Light Materials Businesses

As previously announced on May 30, 2019, the Company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. We remain committed to the separation, although the timing is uncertain. We continue preparations to ensure that the two businesses are well-positioned for the separation when the markets recover from the effects of the COVID-19 pandemic.

Details of Financial Results

We conduct one of our cement plant operations through a 50/50 joint venture, Texas Lehigh Cement Company LP (the Joint Venture). We use the equity method of accounting for our 50% interest in the Joint Venture. For segment reporting purposes only, we proportionately consolidate our 50% share of the Joint Venture’s revenue and operating earnings, which is consistent with the way management organizes the segments within Eagle for making operating decisions and assessing performance.

In addition, for segment reporting purposes, we report intersegment revenue as a part of a segment’s total revenue. Intersegment sales are eliminated on the income statement. Refer to Attachment 3 for a reconciliation of these amounts.

About Eagle Materials Inc.

Eagle Materials Inc. manufactures and distributes Portland Cement, Gypsum Wallboard and Recycled Gypsum Paperboard, and Concrete, Sand and Aggregates from more than 75 facilities across the US. Eagle’s corporate headquarters is in Dallas, Texas.

Eagle’s senior management will conduct a conference call to discuss the financial results, forward looking information and other matters at 8:30 a.m. Eastern Time (7:30 a.m. Central Time) on Tuesday, May 19, 2020. The conference call will be webcast simultaneously on the Eagle Web site eaglematerials.com. A replay of the webcast and the presentation will be archived on the site for one year.

Forward-Looking Statements. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company’s belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company’s actual performance include the following: the cyclical and seasonal nature of the Company’s businesses; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in energy costs including, without limitation, natural gas, coal and oil; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; fluctuations in or changes in the nature of activity in the oil and gas industry, including fluctuations in the level of fracturing activities and the demand for frac sand and changes in processes or substitutions in materials used in well fracturing; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change regulation); possible outcomes of pending or future litigation or arbitration proceedings; changes in economic conditions specific to any one or more of the Company’s markets; competition; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction; risks related to pursuit of acquisitions, joint ventures and other transactions; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials or increases in the cost of energy (including, without limitation, natural gas, coal and oil) could affect the revenue and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company’s result of operations. With respect to our acquisition of certain assets from Kosmos Cement Company, factors, risks and uncertainties that may cause actual future events and developments to vary materially from those anticipated in such forward-looking statements include, but are not limited to, failure to realize expected synergies from or other benefits of the transaction, significant difficulties encountered in integration or unexpected ownership transition costs, unknown liabilities or other adverse developments affecting the assets acquired and the target business, including the effect on the acquired business of the same or similar factors discussed above to which our Heavy Materials business is subject. Additionally, the proposed separation of our Heavy Materials and Light Materials businesses into two independent, publicly traded corporations is subject to various risks and uncertainties, including risks related to conditions in debt and equity markets, and may not be completed on the terms or timeline currently contemplated, or at all. Finally, regarding any forward-looking statements made by the Company, the risks and impacts associated with the disruption of business resulting from natural disasters or other unforeseen events, including, without limitation, impacts related to the COVID-19 pandemic and its impact on economic conditions, capital and financial markets, and the Company’s operations, must be considered. The COVID-19 pandemic has had and may continue to have a material adverse effect on general economic conditions, and could materially and adversely affect construction spending and demand for our products and our ability to continue to operate our facilities in an efficient manner. These and other factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and subsequent quarterly and annual reports upon filing. These reports are filed with the Securities and Exchange Commission. All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company’s expectations.

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