EXP Q1 2009 –disappointing...
One disappointment was the shortfall in Illinois Cement revenues. I have been expecting FY2009 cement operating earnings to come to about $110-120M (FY2008 cement operating earnings were $107M). With an 18% decline in cement operating earnings in Q1 2009 (i.e. from $27.6M to $22.6M), this expectation will be hard to meet. Some of the current shortfall was due to delays in Illinois State expenditures for capital improvements. Reductions in state spending could persist throughout FY2009 due to decreases in tax income resulting from decreased real estate valuations and gasoline sales. State budgetary issues are a problem in Northern California as well.
A second disappointment was that there was no mention of a share buy back at what I consider cyclically low prices. As of the end of FY2008, EXP had Board authorization to buy back an additional 717,300 shares. I can understand the need for preserving capital during these difficult times. But, delays in startup of the Nevada Cement modernization has reduced FY2009 Capex expenditures by about $50M (sufficient to purchase about two million shares at today’s prices).
It seems that the major driver of stock prices in recent days has been the anticipated cost of energy as gaged by oil and natural gas futures. When the price of oil drops, EXP’s share price increases and viz versa. EXP’s fortunes are indeed tied to energy. Increases in energy, transportation, and raw material costs during the past year have added about $20/MMSF of wallboard. Cement is also energy intensive.
I was glad to hear that EXP plans to maximize profits, not market share in the Wallboard segment. Steve Rowley implied that they would pull back from the low margin wallboard markets during the remainder of FY2009. I’m assuming that these low margin markets are those associated with high transportation costs.
