Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

EXP’s Oct 22 CC highlights....

Eagle remains profitable at a time when its main competitor, USG, is bleeding cash profusely. The main difference is that EXP has been successful at offsetting wallboard volume and price declines by cost-cutting at the operational level and reduced financing costs. USG has been striving to reduce operational costs, but its financing costs are largely outside its control.

EXP’s wallboard profits were favorably impacted by lower energy, freight and recycled paper (old corrugated container) costs. EXP has 65% of its natural gas requirements hedged at about $4.75 for the current quarter and about 20% hedged at $4.85 for the remainder of the year. This is in marked contrast to USG which has natural gas currently hedged at $9.20 for 85% of its current needs falling to 23% of its needs in January. At the end of August, spot gas prices were about $2.85 a decatherm. Now, two months later, spot prices are about $5.16.

EXP’s cement profits were favorably impacted by reduced outside maintenance spending, use of less expensive fuels, and reduced reliance upon high-priced purchased product.

EXP believes that the decline in single-family construction appears to have leveled off, but the continued decline in non-residential construction has continued to put downward pressure on wallboard demand. Cement demand is expected to increase next year once the impact from stimulus-related infrastructure projects start in earnest. Margins, however, are expected to remain tight due to the aggressive bidding necessary to obtain stimulus fund related contracts.