Eagle Materials Inc · NYSE:EXP
Eagle Materials — Investor Presentation (2013)
57 slides from Eagle Materials's investor presentation, Sep 2, 2013
Slide 1: Low Cost Producer: Profitable Growth
Low Cost Producer Profitable Growth • Smart Investments • Up-Cycle Tailwinds • Favorable Secular Trends • Low-Cost Foundation Spring 2013
Slide 2: Forward Looking Statement
Forward Looking Statement Forward-Looking Statements. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking s
Slide 3: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates and Frac Gypsum Concrete Sand Paperboard
Slide 4: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates and Frac Gypsum Concrete Sand Paperboard
Slide 5: Multiple Sources of Cost Advantage
Multiple Sources of Cost Advantage ü Operating Execution ü Operational Innovation ü Technology/Engineering Raw Materials Manufacturing Transportation and Inputs and Overhead Delivered Cost to Market and Logistics Industry Industry Industry EXP EXP EXP Raw Materials Cost Production Waste Inbound E
Slide 6: Our Low Cost Producer Strategy Is Also Aligned with Sustainability
Our Low Cost Producer Strategy Is Also Aligned with Sustainability Strategy Objective Sustainability Result Less Responsible use of Reduced cost waste resources Less energy Smaller environmental Reduced cost used footprint Less mineral Greater Reduced cost resource used conservation Less water Lower
Slide 7: Track Record of Disciplined Investment
Track Record of Disciplined Investment Some Say “The Best Predictor of Grades is Grades” Source: Longnecker & Associates. All measures are based on last fiscal year end. Note: Direct Peers include: Martin Marietta, Texas Industries Inc., USG Corp., Vulcan Materials Note: Industry Peers include: Mart
Slide 8: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates and Frac Gypsum Concrete Sand Paperboard
Slide 9: A Central US Cement System
A Central US Cement System New Cement Plants – Adjacent but Not Overlapping Market Reach • Heartland focus limits direct import threat • Sugar Creek and Tulsa acquisitions November 30, 2012 filled-in a key Nevada Nevada Mountain Mountain Sugar Sugar Creek, Creek, MO MO Illinois Illinois “missing pie
Slide 10: Scale and Value
Scale and Value Increased the Size of Our Cement Business by 60% Cement Short Tons Capacity Texas Lehigh (50%) 700 Illinois Cement 1,100 Mountain Cement 700 Nevada Cement 550 Eagle Today 3,050 Sugar Creek 1,150 ~$225/ton Tulsa 700 acquisition price Acquired Assets 1,850 Total Eagle Post-Closing 4,90
Slide 11: US Cement Consumption Outlook
US Cement Consumption Outlook Million Metric Tons New capacity is constrained for the foreseeable future, some existing capacity may be closed in 2015 due to NESHAP compliance; 120 imports will be required again to meet demand 100 US Capacity ? Non-Residential 80 60 Residential 40 20 Governmental 0
Slide 12: EPA Regulatory Developments
EPA Regulatory Developments Final Rule Issued – Extension Granted On December 20, 2012, the EPA issued a final rule amending the • National Emission Standards for Hazardous Air Pollutants (NESHAP) for the Portland Cement Manufacturing Industry • New Source Performance Standards (NSPS) for Portland C
Slide 13: EPA Regulatory Developments
EPA Regulatory Developments Standards Tough to Meet, Will Chill New Capacity Addition Existing Source New Source Pollutant Standard Standard Standards for new Particulate Matter 0.07 lb/ton clinker 0.02 lb/ton clinker sources are Mercury 55 lb/MM tons clinker 21 lb/MM tons clinker challenging to mee
Slide 14: Concrete/Cement Value Proposition
Concrete/Cement Value Proposition In Relation to Asphalt, the Leading Substitute • Historically initial costs per construction mile have favored asphalt over concrete • Asphalt is used over 85% of the time in US highway and road construction, and this has been the case over many decades • Life cycle
Slide 15: Life Cycle Analysis Favors Concrete
Life Cycle Analysis Favors Concrete Pavement Life Expectancy (Before Reconstruction is Required) Concrete 25 Average: 29.3 Years Number of State DOTs Reporting 20 Asphalt Average: 13.6 Years 15 Asphalt 10 Concrete 5 0 1-5 Years 6-10 11-15 16-20 21-30 31-50 Years Years Years Years Years Source: PCA H
Slide 16: Asphalt Production Costs Linked to Oil/Bitumen
Asphalt Production Costs Linked to Oil/Bitumen Asphalt Costs Diverging from Historical Relationship with Concrete 300 Asphalt PPI $300 Dec 1984 =100 $250 200 $200 Ready Mix PPI Dec 1984 =100 Crude Oil $/ $150 Barrel 100 $100 $50 0 $0 Dec-84 Dec-90 Dec-96 Dec-02 Dec-08 Sources: US Department of Labor
Slide 17: Asphalt Total Cost Breakdown
Asphalt Total Cost Breakdown Bitumen Now Accounts for More Than Half the Cost (<5% the mass) 2007 Bitumen costs 2011 have escalated 12%/yr since 2005 Labor Labor 9% 13% Overhead 9% Bitumen Overhead 15% 34% Aggregates Bitumen 12% 52% Aggregates 17% Fuel Fuel 18% 22% "Bitumen" is naturally occurring s
Slide 18: Concrete Share Has, In Fact, Been Growing
Concrete Share Has, In Fact, Been Growing Growth Since 2008 Has Been Masked by the Recession Concrete Share of Highway Paving Volume 18% 17.5% 16.2% 15.5% Long-Term Average 14.4% 13.3% 13% 12.1% 8% 2007 2008 2009 2010 2011 Source: PCA June 2012, Oman Data Systems 18
Slide 19: Outlook and Strategic Implications
Outlook and Strategic Implications A Game Changer for Cement and Asphalt • The price of asphalt is expected to continue to diverge from the price of concrete as oil price inflation remains higher than the cost inflation of the fuels used in producing cement (e.g., petcoke, shale gas) • High oil pric
Slide 20: PCA Projected Initial Bid Paving Costs
PCA Projected Initial Bid Paving Costs Per Two Lane Road Mile - Urban Parity achieved in Fiscal 2009 – asphalt is an oil-based material Bid costs do not consider life-cycle costs – which further favors concrete $1,200 Asphalt $1,000 $800 $600 Concrete $400 $200 2003 2005 2007 2009 2011 2013 2015 20
Slide 21: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates and Frac Gypsum Concrete Sand Paperboard
Slide 22: Close Relationship of End-Uses
Close Relationship of End-Uses Oil Well Cement and Frac Sand Important elements for unlocking energy in the shale plays • Specialty oil well cement for casing wells • Special purpose frac sand to keep the fractures “propped open” Oil or Gas se oir rv Energy Re 22
Slide 23: Shifting the Cement Product Mix to Oil Well Cement
Shifting the Cement Product Mix to Oil Well Cement A Top Company Priority Eagle has been • Very few US cement producers have the pre-eminent the capability, know-how, permits or US producer of oil customer relationships required to well cement for effectively produce and market decades, well in spec
Slide 24: Frac Sand a Key Companion with Oil Well Cement
Frac Sand a Key Companion with Oil Well Cement Both are Mutually Reinforcing Growth Opportunities Current Target Key Target Plant Production Production Cement Shale Capability Eagle Plant Proportion Proportion Grades Plays Status Texas Mature ~ 50% > 50% Class H Eagle Ford Lehigh capability Mature M
Slide 25: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates and Frac Gypsum Concrete Sand Paperboard
Slide 26: Frac Sand is a Natural, Close Adjacency for Eagle
Frac Sand is a Natural, Close Adjacency for Eagle Key Growth Opportunity and a Top Eagle Priority Leverages existing • Customer base (oil well cement) • Prime distribution infrastructure that can be readily repurposed (Corpus Christi terminal, proximate to Eagle Ford) • Processing expertise (aggrega
Slide 27: Geology is Destiny – Quality Scarcity
Geology is Destiny – Quality Scarcity Dark Red Represents the Outcroppings of Quartz Sand ~ 500 Million Years Old MN/WI Highest Northern Illinois Quality Frac Sand Southeast MO Small Universe of Areas in North America (and in the World) Studies have shown geologic conditions creating these deposits
Slide 28: Sandstone Formation Section View
Sandstone Formation Section View Moreover, Sandstone Closest to the Surface is Even Less Common 28
Slide 29: Northern White Sand
Northern White Sand State Perspective and Top Players Wisconsin (Top Quality) 10 million tons capacity 1. Badger Mining 2. Unimin Minnesota (Top Quality) 3. Fairmount 4 million ton capacity 4. EOG Resources • Unimin Michigan (#2 Quality) 1 million tons capacity • Sergeant Sand Illinois (Top Quality)
Slide 30: Completed Entrance to Illinois Sand
Completed Entrance to Illinois Sand Good Neighbor Landscaping Quarry Preparation 30
Slide 31: Corpus Christi Site Repurposing Underway
Corpus Christi Site Repurposing Underway Nearly Complete 31
Slide 32: Oil Directed Rig Count History and Forecasts
Oil Directed Rig Count History and Forecasts Simmons and Energy Information Agency 2,000 High Case Even their low case has oil directed rig 1,500 counts above 2011 levels for the next three years Base Case 1,000 Low Case 500 0 2008 2009 2010 2011 2012 2013 2014 2015 32
Slide 33: Drilling Activity Forecasts by Type
Drilling Activity Forecasts by Type Baker Hughes and Spears, January 2013 Frac Sand Intensive • Horizontal is forecast to account for 62% of all rigs working in the US in 2013 • Directional rigs will account for 11% of the total • Vertical rigs will represent 27%. 33
Slide 34: Unconventional Oil/Liquids Rig Count Forecast
Unconventional Oil/Liquids Rig Count Forecast Eagle Ford Remains the Most Important, Miss and Utica Fastest Growing 250 Total oil/liquids forecast to be up 13% from 864 to 979. 200 4Q12 150 Year End 2013 Forecast 100 50 0 34
Slide 35: North American Proppant Annual Demand Outlook
North American Proppant Annual Demand Outlook Simmons and Company, December 2012, annual million tons 50 47 45 40 34 30 27 20 17 10 0 2009 2010 2011 2012 2013 35
Slide 36: Estimated Available Supply and Demand
Estimated Available Supply and Demand Million Tons The industry may need to continue to rely on lower quality but more proximate sand types (as well as ceramics) to close the 50 supply gap until new sources can be developed 40 30 Inferior Sand Types 20 High Quality 10 White Sand 0 2011 Tons 2012 Ton
Slide 37: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates and Frac Gypsum Concrete Sand Paperboard
Slide 38: Eagle's US Market and Production Locations
Eagle’s US Market and Production Locations Gypsum, CO 725 MMSF Duke, OK 1,300 MMSF Albuquerque, NM Georgetown, SC 450 MMSF 900 MMSF Bernalillo, NM Lawton, OK 525 MMSF 350,000 tons Currently idled Gypsum Wallboard (National-Scope) Paper Note: Design capacities here do not necessarily represent curren
Slide 39: US Demand for Gypsum Wallboard
US Demand for Gypsum Wallboard Closely Linked with Housing BSF 1,500 40.0 New Home Sales (000) 35.0 30.0 1,000 25.0 20.0 15.0 500 10.0 5.0 0 0.0 1980 1990 2000 2010 Source: US Census Bureau, company analysis 39
Slide 40: Latest Single-Family Housing Starts Forecasts
Latest Single-Family Housing Starts Forecasts SAAR in Millions Harvard Joint Center for Housing Studies Moody’s economy.com “conservative” case: 16 million housing 2.00 units needed 2010-20 (implies an average Other Forecast of 1.6 million/year -- household formations alone are 1.3 million) 1.50 Hou
Slide 41: Proportion of Improving Metro Markets
Proportion of Improving Metro Markets Percentage of 385 Metro Areas as Surveyed by NAHB 100% House prices, employment, and housing permits have gained in 242 out of 385 metro areas over the prior six months, in contrast to only 12 metro areas doing so just sixteen months ago. 75% 50% 25% 0% Sept Dec
Slide 42: Repair and Remodeling Outlook
Repair and Remodeling Outlook Harvard’s Outlook Suggests Growing Strength into 2013 JAN 17 Update 42
Slide 43: Comparative Regional Recovery Outlooks
Comparative Regional Recovery Outlooks Single Family Starts, Moody’s Base Case, 2011Q2 = 1 6 Albuquerque (Albuquerque, NM, Santa Fe, NM, Phoenix, Eagle is well-positioned AZ MSAs) 5 to serve some of the Georgetown (Charleston, SC, Columbia, SC, Wilmington, NC, markets that are Raleigh, NC, CharloBe,
Slide 44: Financial Discipline is a Key Enabler of Success
Financial Discipline is a Key Enabler of Success An Eagle Hallmark Capital Structure Funding Strategy Use of Cash 44
Slide 45: Financial Summary
Financial Summary Profitable Performance Throughout the Cycle Adjusted Revenues (1) Adjusted EBITDA (2) $1,200 $400 $351 $994 $1,000 $925 $868 $300 $289 $845 $800 $699 $695 $694 $220 $201 $203 $579 $581 $600 $533 $537 $200 $501 $160 $152 $141 $131 $400 $123 $100 $105 $100 $200 $0 $0 2003 2004 2005 2
Slide 46: Eagle Evolution Since Peak of Last Cycle
Eagle Evolution Since Peak of Last Cycle Long-Standing Goal of Doubling Our Peak to Peak Earnings Power 1. One-third more productive capacity in place • Cement: Illinois expansion completed • Wallboard: Ultra-efficient new plant built in Georgetown • Paper: 350,000 ton capacity today (220,000 ton or
Slide 47: Capital Structure
Capital Structure Net Debt-to-Cap 40% 38% 35% 41% Net Debt-to-Equity 67% 62% 55% 69% $800 $688 $700 ($ Millions) $600 $500 $452 $460 $473 $474 $400 $302 $285 $300 $260 $200 $100 $- 3/31/10 3/31/11 3/31/12 12/31/12 Equity Net Debt 47
Slide 48: Debt Maturity Profile
Debt Maturity Profile $100.0 $81.2 $80.0 $ In Millions $60.0 $57.0 $40.0 $36.5 $20.0 $9.5 $8.0 $4.7 $0.0 2013 2014 2015 2016 2017 2018 2019 2020 Fiscal Years 2005 Senior Notes 2007 Senior Notes 48
Slide 49: Disciplined Use of Cash
Disciplined Use of Cash $ Millions $600 $500 Dividends $400 $300 Growth and Improvement $200 Share Repurchases $100 $0 Maintenance FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 YTD Note: Issued 3.5 million shares in FY 13 pursuant to the acquisition of Lafarge assets. 49
Slide 50: Investment Summary
Investment Summary Eagle Materials • Low cost producer • Leading positions in attractive markets • Strong earnings growth in up-cycle, and now in early innings • Favorable secular demand trends, especially for cement and frac sand • Recently acquired assets from Lafarge are highly complementary and
Slide 51: Non-GAAP Reconciliation
Materials Non-GAAP Reconciliation 51
Slide 52: Non-GAAP Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation Adjusted EBITDA Adjusted EBITDA represents earnings before (i) interest, taxes, depreciation and amortization, (ii) certain other non-cash or non-routine items, and (iii) acquisition costs and other overhead costs allocated to the Lafarge Target Business. Adjusted EBITDA is a
Slide 53: Non-GAAP Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation Adjusted EBITDA The following provides a reconciliation of the Lafarge Target Business EBITDA for the 11 months ended 9/30/12: 9 months 9 months Dec. 2012 Year ended LTM 11 $ million ended ended (Eagle 12/31/11 9/30/12 months 9/30/11 9/30/12 owned) Lafarge Target Business Net
Slide 54: Non-GAAP Reconciliation: Adjusted Revenue
Non-GAAP Reconciliation Adjusted Revenue LTM $ million 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 3/31/09 3/31/10 3/31/11 3/31/12 12/31/12 Eagle $ 429 $ 503 $ 617 $ 860 $ 918 $ 748 $ 599 $ 468 $ 462 $ 495 $ 600 Joint Venture (50%) 72 76 82 65 76 97 96 65 75 86 94 Total $ 501 $ 579 $ 699 $ 925 $
Slide 55: Non-GAAP Reconciliation: Adjusted Revenue
Non-GAAP Reconciliation Adjusted Revenue The following provides a reconciliation of the Lafarge Target Business revenue for the 11 months ended 9/30/12: 9 months 9 months Dec. 2012 Year ended LTM $ million ended ended (Eagle 11 months 12/31/11 9/30/12 9/30/11 9/30/12 owned) Lafarge Target Business R
Slide 56: Major Facilities
M A J O R FA C I L I T I E S CEMENT PLANTS CONCRETE AND AGGREGATES PLANTS GYPSUM WALLBOARD PLANTS PAPERBOARD MILL CENTRAL PLAINS CEMENT CENTEX MATERIALS LLC AMERICAN GYPSUM COMPANY LLC REPUBLIC PAPERBOARD COMPANY LLC Austin and Buda, Texas Albuquerque, New Mexico COMPANY LLC Sugar Creek, Missouri MA
Slide 57: Contact Information
Contact Information Steve Rowley President and CEO (214) 432-2020 srowley@eaglematerials.com Craig Kesler Executive Vice President and CFO (214) 432-2013 ckesler@eaglematerials.com Bob Stewart Executive Vice President, Strategy, Corporate Development and Communications (214) 432-2040 bstewart@eaglem