Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

“Bouncing along a kind of a soft bottom”...

At the June 17 Longbow Conference, both EXP and USG projected a gradual, but relatively sustained recovery that won’t accelerate before 2012.

EXP argued that substantial profitability will not occur until industry-wide wallboard capacity is reduced; USG argued that demand, not capacity reduction, will drive profitability. Regardless, both note that there is no appetite for capacity reduction in the industry.

In the absence of meaningful capacity reductions, Rowley believes that wallboard prices will be increased to the point that industry cash costs are realized but there will not be a meaningful return on investment industry-wide in the near future.

Other items of note:

From EXP presentation:

Rowley believes that EXP is positioned in some of the earliest housing recovery markets in the U.S. In particular, he believes that wallboard margins in the Western U.S. can eventually regain health through a moderate housing market recovery alone. In the East, it will be significantly more challenging.

Pozzolan permitting is finished (see #msg-42854938); EXP is putting the infrastructure in place to start mining the deposit. In addition to their own requirements, EXP expects to be selling pozzolan, a natural high-performing and low-cost extender of cement and concrete applications.

EXP is open to the idea of making new investments.

From USG presentation:

Every 100,000 housing start, up or down, equates to approximately 840 million feet of industry demand.

Regarding idled capacity:

If you look at history, the last three recessions that we’ve had in the industry, very few, if any, idled capacity comes back. And the reason it’s idled is because it’s old, it’s inefficient and the longer it sits, the more expensive it is to bring back. I mean, you’re talking seven to eight figures to bring idle capacity back and you really have to have confidence that the demand is sustainable, that the pricing’s going to stay at a level that you can make money, because a lot of this idle capacity probably had costs 140 or $150 a 1,000. So our thesis is we don’t expect a lot of it to come back and the reason you’ll see manufacturers that call it idled, they just have resisted to take the full write-off. There’s sometimes cleanup and things that they said ‘you know, we’ll do at a later date.