Overview

Eagle Materials Inc. (EXP) is a diversified manufacturer of heavy construction materials and light building materials in the United States. The company operates in two primary sectors: Heavy Materials, which includes the Cement and Concrete and Aggregates segments, and Light Materials, which includes the Gypsum Wallboard and Recycled Paperboard segments.

Financials

In fiscal year 2024, Eagle Materials reported record revenue of $2,259,297,000 and net income of $477,639,000. The company also generated strong operating cash flow of $563,938,000 and free cash flow of $443,633,000, demonstrating its ability to consistently generate substantial cash flow.

Heavy Materials Sector

The Heavy Materials sector saw annual revenue increase 12% to $1,500,000,000. This was driven by higher cement sales prices and the contribution from the Stockton Import Terminal acquisition completed in the first quarter of fiscal 2024. Operating earnings in the Heavy Materials sector grew 18% to $351,000,000.

In the Cement business, annual revenue increased 16% to $998,437,000, reflecting higher sales prices, which offset a 2% increase in sales volume. Operating earnings in the Cement segment grew 29% to $301,056,000, as the company was able to expand margins through the pricing actions. The Concrete and Aggregates business also performed well, with annual revenue increasing 8% to $201,526,000, though operating earnings declined 14% to $13,434,000 due to higher operating costs.

Light Materials Sector

The Light Materials sector saw annual revenue decline 4% to $941,000,000, primarily due to lower wallboard sales volume. Operating earnings in the Light Materials sector decreased 3% to $366,000,000.

In the Gypsum Wallboard business, annual revenue declined 4% to $629,299,000, as a 4% decrease in sales volume offset a 1% increase in average selling prices. Operating earnings in the Gypsum Wallboard segment decreased 4% to $251,625,000. The Recycled Paperboard business performed better, with annual revenue declining 12% to $135,397,000, but operating earnings increasing 30% to $22,316,000 due to lower input costs.

Outlook

Looking ahead, the company remains optimistic about the demand outlook for its products. In the Heavy Materials sector, the company expects federal infrastructure spending to increase, supporting demand for cement, concrete, and aggregates. Additionally, the company is investing $430 million to modernize and expand its Mountain Cement plant in Laramie, Wyoming, which will increase capacity by approximately 50% in a high-growth market, lower manufacturing costs by 25%, and reduce the carbon intensity of the business by 20%.

In the Light Materials sector, the company sees positive signs for the single-family residential market, which should benefit the Gypsum Wallboard business, as single-family units are two to three times more wallboard-intensive than multifamily units. The company also expects the repair and remodel market to potentially bottom out as it exits the current calendar year, further supporting wallboard demand.

Liquidity

Eagle Materials' financial position remains strong, with a net debt-to-capitalization ratio of 45% and a net debt-to-EBITDA leverage ratio of 1.3 times as of March 31, 2024. The company has substantial liquidity, with $35 million in cash and $607 million in total liquidity at the end of the fiscal year. This financial flexibility allows the company to continue investing in growth initiatives, such as the Mountain Cement expansion, while also returning capital to shareholders through share repurchases and dividends.

During fiscal 2024, Eagle Materials returned $343 million to shareholders through share repurchases and dividends, reducing the outstanding share count by 5% over the course of the year. The company has 5.9 million shares remaining under its current repurchase authorization, providing further opportunity to enhance shareholder value.

Conclusion

Overall, Eagle Materials' diversified business model, strong market positions, and disciplined capital allocation strategy have positioned the company for continued success. The company's focus on operational excellence, strategic investments, and shareholder returns make it an attractive investment opportunity in the heavy and light building materials sector.