Southwestern Showcase Investor Conference Presentation...
Art Zunker (CFO) made a presentation to the Southwestern Showcase Investor Conference in Dallas TX on Nov 14, 2007 (see Eagle website for webcast and slides). I have summarized some of my notes here.
Some insight concerning EXP’s investment philosophy was provided in this presentation. For example, it was stated that “[we will] acquire what we know and understand”. In particular, EXP believes in stock buybacks. They have purchased approx 8% of their stock during the Sept 2007 quarter and 25% since the Jan 2004 spin-off from Centex. Approx 1.5 Million shares remain under the current repurchase authorization. A second summary statement was that “their philosphy is minimal forward integration so as not to compete with their customers.” They plan to continue to acquire raw material resources such as gypsum and limestone. And, a major use of their internally generated capital will be to fund large expansion projects.
They have one major expansion project in wallboard capacity (Georgetown SC) and three modernizations of their cement facilities in the works. These are detailed in the presentation. Upon completion of these projects, costs of sales per unit is expected to decline 5% for wallboard, 25% for cement, 5% for paper, and 10% for aggregates. Operating earnings are expected to almost double with the actual increase being between $100M and $170M/yr dependent upon the phase of the cyclical business environment.
I had not realized the importance of the Republic paperboard division’s contribution to cost containment in wallboard production before this presentation. Republic produces gypsum paperboard that is 15% lighter than the industry average. It was noted that USG is modernizing its paper supply by converting its Ostego MI mill to gypsum liner and National plans to modernize its Anniston AL mill.
Wallboard demand is currently 32 BSF/yr with capacity of 38 BSF. Capacity will increase to 43 BSF in the next two years if there are no additional plant closures. Most of this increased capacity will be low cost production in the Southeastern region of the US, where the new Georgetown facility will be located. In particular, there are four capacity expansions in the works in the southeastern US (Eagle-Georgetown (0.75 BSF), Koch-Savannah (0.6 BSF), Natl-Charlotte (1.0 BSF), and USG-Norfolk (0.5 BSF). There are no expansions in the EXP’s core Southwestern region. The concentration of capacity expansion in the Southeastern region reflects the expectation that 25% of the new residential construction in the US will be in the Southeast over the next 25 years; i.e. 14M of the 59M new homes required to accommodate US population growth to 376 million will be in the SE. For comparison, approx 125M homes exist today and approx 15% of these existing homes are expected to be torn down and rebuilt during the next decade.
