Eagle Materials Earnings Call Nuggets: Wallboard Pricing and Frac Sand

Eagle Materials (NYSE:EXP) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Wallboard Pricing

B.G. Dickey – Stephens, Inc.: This is actually B.G. Dickey sitting in for Trey. First quarter is on wallboard; a while ago there was some noise in the investment community that there might actually be some slippage in wallboard pricing. Obviously, you guys didn’t see anything like that in the quarter nor did your other public competitor. But can you talk about what wallboard pricing has done since the quarter’s end, and is it still sticking in the range we reported for the March quarter?Regular Posts

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Steven R. Rowley – President and CEO: Sure the January price has been fully implemented and demand remains strong. You can see q-over-q our demand was up 9% in the fourth quarter and orders essentially actually remained robust. We have actually finalized at least our April financials and interim financial for wallboard and the mill net’s actually up slightly, it’s up to around $148.

B.G. Dickey – Stephens, Inc.: Then switching to some net you called out I believe $14 million in that annual maintenance expense for these new facilities, does it sound like that’s a good run rate going forward, because I think you said it was kind of double what it normally is but can you kind of give us some health in terms of what we should expect for annual maintenance going forward on these facilities?

Steven R. Rowley – President and CEO: We are very rigorous with our maintenance programs. They are very routine and very extensive. We usually perform just one year and expect the plant to run for another 12 months after we finish it. So it maybe a minor outage here and there, but nothing major. And but so when you pick up a new plant that is kind of maybe been in a little different mode maybe a little more episodic in their maintenance programs that initial maintenance is going to require little catch-up work. And that’s a fact of what we did. So the majority of the catch up work always occurs initially, when you finally get into it you may find a few other things that you know you are going to need to perform the next time but you put the plant in condition where you expect it to run generally for another 12 months and we may have a few other little things to catch up throughout the year but not dramatic like this the initial catch up…

B.G. Dickey – Stephens, Inc.: So would it be fair to say if our both plants kind of $5 million to $7 million annualized number would be more in line with?

Steven R. Rowley – President and CEO: You know, I mean, typically and it depends on the type of plant, the size of the plant, but those are kind of numbers that we see at our other plants on a routine basis for the major maintenance.

B.G. Dickey – Stephens, Inc.: Then on the frac sand opportunity. Can you just kind of given an update on overall opportunity besides Eagle Ford and how we should think about startup costs associated with that business?
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Steven R. Rowley – President and CEO: So, we commissioned the plant really early this quarter and we’re very pleased with the results. The plant operates easily at rated capacity, quality and customer service goals have been achieved. We have very high quality northern white products out in the marketplace and we’re – the ability to load trucks extremely fast and not have a line of trucks waiting to get loaded that has been – we’ve improved that as well, so very excited with the initial commissioning of the frac sand plant. We also additionally have some more products now on the river coming down the Corpus Christi. As we progress throughout the year, we anticipate spending more capital and expanding our footprint beyond the Eagle Ford to other major shale play markets.

B.G. Dickey – Stephens, Inc.: That kind of leaves into my next question was another E&P company recently said on one of their earnings call that they were lowering cost in the Haynesville by pushing more white sand. That’s historically been a ceramic market. (Basically) is that good basin for you guys to move into?

Steven R. Rowley – President and CEO: Which basin did you say?

B.G. Dickey – Stephens, Inc.: The Haynesville?

Steven R. Rowley – President and CEO: The Haynesville. That tends to be a dry gas play. I don’t know that there’s a lot of activity in that market right now. It has not been really one of our targets.Regular Posts

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B.G. Dickey – Stephens, Inc.: Then lastly, and I’ll pass it along. Talk about the increased capacity in the Eagle Ford. Any concern there on pricing pressure?

Steven R. Rowley – President and CEO: No, none whatsoever.

 

Frac Sand

Kathryn Thompson – Thompson Research Group: First on the frac sand, now you are selling third party frac sand as of April. Could you discuss the ROI field de-sales versus Eagle’s current core business? And also additional clarity on the product that is going to be processed – pulled out of Illinois plant – of Illinois property and when you will be selling that?

Steven R. Rowley – President and CEO: We can tell you that we’re very pleased with the margins on the initial sales. They are really meeting or beating expectations of buying third party sand and processing it to get to the plant initially up and running. We still believe that our plant in Illinois will be up and running middle of the summer time frame, sand giving down to Corpus kind of early fall and that’s when the margins will move further…

Kathryn Thompson – Thompson Research Group: In terms of return on equity ROIC, is the ROIC on the third party sales at least equal to or above core Eagle’s returns?

Steven R. Rowley – President and CEO: That’s really hard to – and we’re just in the early stages, but the sales price and the margins and the cost to move the – to buy the sand and move it down the river, all as expected. So, nothing has changed. This is a very high return project and it’s a reasonable return even with purchase product. It’s an exceptional return with our own product.Regular Posts

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Kathryn Thompson – Thompson Research Group: Just to clarify on you expansion into other frac sand opportunities, I assume these are going to be barge opportunities, so you can continue to take advantage of that cost differential to arbitrage?

Steven R. Rowley – President and CEO: It will be a combination of both. It’s really all about the best logistics to each market that we’re chasing. So clearly, the Eagle Ford that made sense that the best logistics and the best customer service was by barging down in Eagle Ford. There is not any barging facilities that I know of up in the Dakotas, so that one will have to be handled a little different logistically. I have not made a final decision on the Utica and Marcellus. That one will be a close call which gives us the best logistics.

Kathryn Thompson – Thompson Research Group: Once again on the $0.21 maintenance cost, would you guess about half to a third or is really more one-time?

Steven R. Rowley – President and CEO: You know that was – certainly more than a half would be one-time, would be my guess.

A Closer Look: Eagle Materials Earnings Cheat Sheet>>