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Even Hurricanes Couldn't Stop Eagle Materials Inc. From Setting a Revenue Record

Several hurricanes ravaged the Southern U.S. during Eagle Materials' (NYSE: EXP) fiscal second quarter, disrupting the company's operations and reducing demand for its products. However, it was able to overcome those literal headwinds thanks to strong cement pricing and the positive impact from its recent acquisition of the Fairborn cement plant from Cemex, and hit record  revenue. Meanwhile, once rebuilding begins in earnest in the areas  impacted by the storms, it should drive up demand for Eagle's cement, concrete and wallboard products.

Eagle Materials results: The raw numbers

Metric

Fiscal Q2 2018

Fiscal Q2 2017

Year-Over-Year Change

Revenue

$376.3 million

$332.7 million

13.1%

Net earnings

$63.4 million

$60.2 million

5.2%

EPS

$1.31

$1.25

4.8%

Data source: Eagle Materials Inc. EPS=earnings per share. 

Image source: Getty Images.

What happened this quarter? 

The Fairborn plant was the difference-maker:

  • Cement revenues rose 15% vs. the year-ago period to $191.7 million due to the addition of Fairborn, as well as higher prices. Overall, cement prices rose 7% year over year while volumes were 9% higher, which helped drive operating income up 16% to $58.8 million. However, if we exclude Fairborn from the results, prices were up 5% while volumes declined 5% due to wet weather across its Midwest markets and hurricane-related flooding in Texas, which impacted cement shipments from that state. 
  • Concrete and aggregate sales increased 11% to $43.0 million while operating profit rose 17% to $5.6 million thanks to higher volumes and sales prices.
  • Revenue from the gypsum wallboard and paperboard segment slipped 1% to $150.3 million due to slightly lower gypsum wallboard prices and paperboard volumes, which were offset by higher gypsum wallboard volumes and paperboard prices. That said, volumes would have been higher if not for Hurricanes Harvey and Irma, with the latter requiring that the company shut down its facility in South Carolina. These and other factors drove an 11% decline in operating earnings to $46.1 million.
  • The oil and gas proppants segment continued its brisk recovery in the quarter, with sales popping 232% to $22 million thanks to improving volumes and prices for frack sand. That said, the segment still operated in the red, losing $1.8 million during the quarter.

What management had to say 

As CEO Dave Powers noted:

Eagle Materials' quarterly results reflect hurricane and other weather-related operational and demand interruptions. We were more fortunate than many as our employees remained safe and our operations incurred no damage.

While none of the company's facilities sustained any damage, the storms cut its cement and gypsum wallboard sales volumes because the company temporarily suspended production at one site and couldn't get products shipped out of others due to flooding. However, it compensated for those impacts thanks to the additional volumes provided by Fairborn, as well as through a significant uptick in its oil and gas proppants business powered by a ramp-up in drilling and fracking activities across the U.S.

Looking forward 

While the hurricanes acted as a headwind on sales volumes during the quarter, they'll likely become a tailwind for the company. Repairs and rebuilding could drive up volumes and prices for cement and gypsum wallboard. This led Powers to say that "Eagle is poised to serve our customers' additional needs as they meet the challenges of rebuilding over the coming quarters."

In addition to the anticipated improvement in the construction market, the oil and gas sector continues its slow recovery. While oilfield service giant Halliburton (NYSE: HAL) noted this quarter that drilling activities across the U.S. have slowed, which might impact near-term profitability, levels remain well above where they were last year. The led Halliburton's CEO, Jeff Miller, to say that "our North American business is hitting on all cylinders." That relative strength suggests that frack sand volumes and prices should hold up in the near term, which could eventually push Eagle's proppant segment back into the black. 

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Eagle Materials. The Motley Fool has a disclosure policy.