Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

Near term expectation: Lower revenue but higher margins.... That’s my take home message for the upcoming quarter based upon the 2011 Q1 CC (of July 22)

The central question for the industry is: will there be a sustained wallboard price increase so that industry cash costs can be covered or will there be a price war in an effort to utilize excess capacity and reduce costs?

EXP apparently prefers avoiding a price war; i.e. (from the 7/22/10 CC):

<Rowley in prepared remarks> Because of our low variable cost position and our low fixed cost in relation to total operating cost, pricing is more of a priority for us than volume in this business environment.

In the Q&A:

<Q – John Baugh>: Hello, good afternoon. Could you talk a little bit about maybe market share of wallboard within the territories that you participate or what do you think you gain share or held share, because it would seem that your overall numbers were higher than the industry?
<A – Steven Rowley>: Yeah. I’m not – if you look at, if you look at the market at least for us, yeah, we may have slightly gained a little bit of share and we’re a little over 10% for the quarter. I still think that we have the ability and our plants are really set up that our market share should be a couple percentage higher than that, that that would fit within our structure of our system to be able to service customers within a reasonable radius around the, around our plants, and – but in this environment we think it’s best to be a little cautious as we go to the marketplace.

Other relevant comments during the CC:

<Rowley in prepared remarks> Wallboard sales opportunities are not expected to increase significantly in calendar 2010.

<Q – Trey Grooms>: Okay. And then Steve, what’s your perspective on the August increase at this point?
<A – Steven Rowley>: Even with these most recent price increases that we have, many of our wallboard competitors still have negative cash flow. All eight wallboard manufacturers are out with price increase letter and I cannot think of a better reason or better incentive for further price increases than negative cash flow.

<Q – Kathryn Thompson>: Hi, thanks. And just following up on the Wallboard price increase question, you had 14% sequential pricing, which implied there’s additional pricing coming to flow through Q2. Could you clarify or make sure that we’re understanding that there’s additional price increasing going through? And also, could you clarify how receptive your customers by segment have been on the price increase and the timing for those price increases by segment or type of customer?
<A – Steven Rowley>: Okay, so, you know, obviously price increases in this environment are difficult. However, at the same time, selling a product below your cash costs to produce is just as difficult, if not more difficult. So you have some, some customers who just don’t want to hear price increase. You have other customers that realize this is not tenable, if you continue to sell below cost, you’re going to run out of business and when things turn, they’ll be in a world of hurt. So you could get mixed feelings when you go through that process, but in reality, over the long haul, you have to be able to at least cover your costs when you go to market. So that’s the – that’s the real impetus for further price increases.

<Q – Todd Vencil>: .. should we think about the September quarter in volumes and cement and wallboard being kind of similar to the June quarter, or is it sort of tailing off? Or is it growing?
<A – Steven Rowley>: Typically, this is our strongest quarter. It is typically the strongest quarter in the construction cycle, with winter being equally as important. So you would anticipate this to be a little stronger quarter.