Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

“rocking along a very low bottom” - Notes from the Q3 CC....

EXP is “Rocking along the bottom of this recession”. At least it is not losing money as it waits out the cycle. And it has meaningful cashflow.

However, there is no reason for near term optimism. Importantly capacity utilization is low in both the wallboard and cement industries. The slack in capacity utilization will need to be absorbed before significant increases in profit margin are to be seen. This could take years....

Fortunately, costs have been low by recent historical standards. Costs, however, are destined to go up. The most immediate increase will be seen in paper, which is used in backing for wallboard.

The CC quotes relevant to the imminent paper cost increase include the following:

.... Now there are a few headwinds, paper prices are going up, we try to inventory ahead so the cost of OCC doesn’t impact us as severely in the front end, but OCC is going up significantly right now. And we know that’s something that we will realize a couple of months down the road....

....OCC (i.e. old corrugated container paper) prices, well for the first year went up about $30. They’re anticipated to go up another $20 next month and $10 the following month. That’s the general lay of the land for OCC. As I mentioned before, we try to build inventory ahead of that which helps somewhat. We do have the ability to pass some of those costs through, both to our gypsum company as well as – we implemented a $40 price increase in the containerboard marketplace and we’re sticking to it.....

<Q – Glenn Wortman>: Okay. And then just secondly on the paperboard margins, where do you see that trending over the next couple quarters?
<A – Steven Rowley>: We see those to be – even though the paper costs are going up, we see and in fact we’ve been able to go out and find some good gypsum demand, it’s obviously down. We have found some other markets to play in that have pretty decent margins. So we really see that being pretty flat going forward even with OCC going up as we’re able to sell into markets other than the gypsum linerboard market.