Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

Near Term Growth: nothing to get excited about ... that is my take home message from Rowley’s presentation at the Morgan Keegan Conf on 9/14/2010.

The primary drivers behind growth at EXP are governmental and non-residential construction for cement (e.g. highways, wind farms, oil wells). Whereas for wallboard, the primary, but not exclusive driver is residential home building. Overall, growth is expected to be driven by increases in public construction in 2010, and then helped by a residential recovery in 2011 and 2012.

Rowley believes that EXP’s cement plants will not be fully utilized until 2012. One of the factors putting the brakes on cement recoveries are state budgets. State fiscal conditions are expected to worsen. Only the most critical State supported infrastructure projects are currently proceeding forward. Commercial non-residential demand is also expected to be a drag on cement utilization in 2010 and 2011, with a recovery in this sector not coming until the 2012 to 2014 time frame. On the other hand, oil-well cement demand should be sustained and is highly profitable for Eagle.

Wallboard utilization at EXP will depend upon the housing recovery in the West and South Mid-Atlantic regions. Rowley believes that the Western U.S., where EXP has its greatest wallboard capacity, can eventually regain health through a moderate housing market recovery alone (i.e. without the need for major capacity reductions).

With respect to near term earnings projections, Rowley made the following statement (which I interpret as a downward bias):

So, while you had that housing tax credit, there was a little surge in demand for wallboard, a little surge in home sales, and we were able to get some price increases from very low levels to where the industry was really well below cash costs. And we were still making a little money, but we were not making a lot. With those two price increases, we got very profitable again. However, once the tax credit went away, and demand slipped in wallboard, a part of those increases have been given back.