Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

Wallboard pricing....

In his prepared remarks, Steven Rowley noted that “the U.S. wallboard industry capacity utilization remained about the same this past quarter, at around 50% and the downward trend in pricing continued during January and February. However, in March, American Gypsum was successful in implementing a wallboard price increase and they have announced plans for another price increase in May.”

That wallboard prices might rise in the face of inadequate capacity closure is remarkable; it is surprising to find that many think it might be sustainable.... To quote Steven Rowley from the Apr 26 Q4 CC:

It’s somewhat amazing in very difficult periods that you would see price increase when sales opportunities are still fairly, fairly low relative to 50% capacity utilization. But what happens over periods, a long period of declining demand, you naturally go through a lot of competitive territorial tactics that tend to result in core business decisions or after a prolonged period of these financial distress, business decisions tend to change. And American Gypsum did land a majority of this announced March 15 price increase, and they plan on doing the same thing for May price increase.
....
Wallboard pricing is up dramatically. And we are anticipating further improvement in wallboard pricing next month. ... Price improvements simply remain more important than increased sales volume. It simply makes no sense to continue to sell products at today’s low prices and continue to take the credit risk.

<Q – Joshua Borstein>: Can you discuss a little why you think the market price increase was so successful? And are there any different dynamics at play right now that didn’t exist previously?
<A – Steven Rowley>: I think one dynamic is that not only did the manufacturers announce a price increase, so did the gypsum specialty dealers, the distribution companies. They also at the same time announced a price increase, whereas in the past, we had not had the downstream distributors fully supporting a wallboard price increase. It was very difficult to realize one. But the combination of both manufacturers and the distribution companies announcing price increases. That really was what the difference was this time.”

<Q – Trey Grooms>: Could you go into a little detail about where you expect that improvement to come from? Is that mostly from residential or kind of – if you could just give us some thoughts on your expectations for the end markets there that’s behind this?
<A – Steven Rowley>: That would be mostly repair and remodel improvement and residential improvement.
<Q – Trey Grooms>: Okay. And so would that be – and you’re expecting commercial, I guess, a continued drag there?
<A – Steven Rowley>: It will be a drag and a drag for some time, because it takes a while for wallboard to go into a commercial building. Until we start building them, we’ve got about a 12 to 18-month lag before we see wallboards go into a project.

Investors can get a real-time sense of wallboard pricing changes in the news releases cataloged by Marjam Supply Co; see: http://www.marjam.com/news