Eagle Materials Inc. (NYSE:EXP) Q2 2024 Earnings Call Transcript

Craig Kesler: Yes, Stanley, look, and Michael mentioned it, it’s such a different environment this cycle than what we’ve seen in prior cycles where not only were you facing demand pressures but there has been a significant amount of new supply being added and most of that was centered around the availability of synthetic gypsum as the source of gypsum has declined significantly as we’ve reduced the power generation vehicle that’s reduced that raw material. And it’s more predominant in the eastern half of the U.S., no doubt. But again, the western and southern part of the country is where a lot of the construction activity has been more robust. So it’s a balance. And I’d say pricing has kind of held in pretty well nationally and different factors across the country for sure.

Stanley Elliott: And you talked a little bit about the balance sheet kind of 1.3x. You should be generating a bunch of cash on a go-forward basis. Help us again with kind of what’s happening with the M&A pipeline, you’ve been active buying shares. Just curious a little — if we get a little more color on plans around that? Or should we see the leverage continue to tick down with the thought of maybe something larger coming down the pipe? Just really more curious than anything.

Craig Kesler : Yes. Stanley, it’s a great question. The capital allocation is an area where we spend a lot of time and focus because we are generating a high level of free cash flow. And as we’ve always said, maintaining the assets is paramount and a bedrock function of Eagle as is the capital structure management, which we put ourselves in a good position in both of those fronts. And so the next use is to continue to grow the enterprise. As you know, we have very high strict criteria, both financially and strategically for that investment. And when those investments don’t meet that criteria, we’re happy to continue to return cash to shareholders. We obviously saw value in the shares this past quarter, and continue to balance that capital allocation between those 2 opportunities, and it’s dependent upon the balance of whether the investment in front of us meets those criteria or not. And that’s kind of the way we’ve operated for a long time.

Operator: The next question comes from Brent Thielman with D.A. Davidson.

Brent Thielman: I just wanted to come back to Wallboard. I guess I’d just be curious if what you’ve seen sort of fiscal year-to-date considering your sort of conversations with customers, what you see around your regions and then we have these prevailing mortgage rates. I mean, does this still feel like sort of a down mid-single-digit environment for volume over the short term? Are you actually more optimistic than that?

Craig Kesler: Yes, Brent, as we said in our prepared comments, look, I think you got to recognize the recent increase in interest rates. And traditionally, what that — how that would impact home building. There’s just some other factors today that are in place that are very different than as we pointed them out, the shortage of homes, existing homes that are at very, very low levels across the country. And you have this idea where you’ve got a significant amount of the mortgages that are outstanding that are sub-4%. And so folks just aren’t moving like they once were and which just puts more pressure on the need to build new homes. And so it’s hard to predict. We’ve kind of been running in this down mid-single digit. It would surprise me that you’re in that range for a little while. But again, it’s not — it’s very different than what we’ve seen in prior cycles.

Brent Thielman: Understood. And Craig, the wallboard margins, I mean, considering some top line pressure in the business, we’re comparably strong or a little better than last year. I wonder if you could just sort of flesh out a few of the variables there that are allowing you to keep margins up.