Eagle Materials, Inc. (NYSE:EXP), James Hardie Industries plc (ADR) (NYSE:JHX), and USG Corporation (NYSE:USG) are leaders in producing cement and wallboard materials (
Eagle Materials, Inc. (NYSE:EXP)), fiber cement siding (
James Hardie Industries plc (ADR) (NYSE:JHX)), and gypsum materials and interior ceiling products (
USG Corporation (NYSE:USG)). These companies serve a number of industries, including residential and commercial construction, home repair and remodeling, and infrastructure.
Currently, these three companies are emerging from one of the largest slumps in construction and remodeling history. They have improved operations, which are leaner than ever, following a few years of declining sales. Importantly, these 3 companies have significant pricing power due to their leadership position and/or access to commodities, which should benefit them when inflation hits.
Fly like an eagle
Eagle Materials, Inc. (NYSE:EXP) operates in four major segments: cement (38% of revenue), gypsum wallboard (39%), recycled paperboard (15%), and concrete and aggregates (8%). The company recently recorded an increase in revenue of $147.6 million, or nearly 30% from the prior year, to $642.6 million. The company should benefit from strong demand in cement
and sand from construction, infrastructure improvements, and large oil and gas projects as well as general increase in demand for construction and repair materials.
In 2012, Eagle Materials, Inc. (NYSE:EXP) announced its intent to acquire two cement plants
and related facilities from Lafarge N.A., boosting its cement production by 60%. The acquisition cost of $446 million for $178 million in annual sales is expensive, but assuming a 15% operating margin (the operating margin of the cement division) this gives a price to operating income of 16.7. Currently, Eagle Materials, Inc. (NYSE:EXP) trades at 26.7 trailing operating income, so this deal should be a positive for shareholders.
James Hardie Industries plc (ADR) (NYSE:JHX)’s margins have been affected negatively in the past few years due to the rising costs of transportation. Fiber cement is heavy and costly to transport. However, the company is currently reorganizing its U.S. operations by moving to regional manufacturing. Another negative is that the company raised its sales volume but prices declined in the U.S. and Europe.
On the positive side, it is diversifying into color coatings and it recently built a new research & development facility near Chicago. Also, it is currently expanding its Carole Park manufacturing facility in Australia. Overall, fiscal 2014 should be a better year in terms of sales, pricing, and profitability.
For the first quarter of its fiscal 2013, USG Corporation (NYSE:USG) reported its first net income in the past five years.