Eagle Materials Inc · NYSE:EXP
Eagle Materials — Investor Presentation (January 2015)
53 slides from Eagle Materials's investor presentation, January 2015
Slide 1: Low Cost Producer
Low Cost Producer Profitable Growth • Sound Strategic Investments • Cyclic Tailwind Benefits • Favorable Secular Trends • Healthy Balance Sheet • Unrivaled Track Record
Slide 2: Forward Looking Statement
Forward Looking Statement Forward-Looking Statements. This presentation 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 st
Slide 3: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure Energy Residential and Related Industry and Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates Frac Gypsum and Concrete Sand Paperboard
Slide 4: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure Energy Residential and Related Industry and Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates Frac Gypsum and Concrete Sand Paperboard
Slide 5: Multiple Sources of Cost Advantage
Multiple Sources of Cost Advantage Low Cost Position is Important in a Commodity Industry ü Operational Execution ü Process Management ü Low-Cost Focused Innovation ü Smart Design and Scale ü Technology and Engineering ü Sustained Maintenance Sustained Innovation Focus on Cost Reduction Signif
Slide 6: Our Low Cost Producer Strategy
Our Low Cost Producer Strategy Is Closely Aligned with Our Sustainability Objectives Strategy Objective Sustainability Result Less Responsible use of Reduced cost waste resources Less energy Smaller Reduced cost used environmental footprint Less mineral Greater Reduced cost resource used conservatio
Slide 7: Some Say the "Best Predictor of Grades is Grades"
Some Say the “Best Predictor of Grades is Grades” Total Shareholder Return as of 3/31/2014 450% Eagle Materials Performance 3000% 75th Percentile 2000% Peer 50th Percentile Performance 1000% 25th Percentile 300% 0% 20-Yr 150% 0% 1-Yr 3-Yr 5-Yr 10-Yr Source: Longnecker & Associates. Peer Group: Marti
Slide 8: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure Energy Residential and Related Industry and Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates Frac Gypsum and Concrete Sand Paperboard
Slide 9: Central US Cement System
Central US Cement System Latest Acquisitions Linked East to West, North to South ~ 5 Million Short Tons Capacity (000) Texas Lehigh (50%) 700 Illinois Cement 1,100 Mountain Cement 700 Nevada Nevada Mountain Mountain Kansas City, MO Illinois Illinois Nevada Cement 550 Cement Cement Cement Cement Ceme
Slide 10: US Portland Cement Consumption
US Portland Cement Consumption PCA Outlook, Million Metric Tons 120 • New capacity -- and capacity expansion -- is constrained for US Capacity the foreseeable ? future 90 • Some existing capacity may be closed or be reduced due to NESHAP 60 compliance • Imports will be required again to meet demand
Slide 11: Texas Cement Consumption History and Outlook
Texas Cement Consumption History and Outlook Key States, Metric Tons, PCA 18,000,000 Texas is Forecast to Exceed 2007 Peak in 2015 12,000,000 6,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 11
Slide 12: Cement Consumption History and Outlook
Cement Consumption History and Outlook Key States, Metric Tons, PCA Central Plains Forecast to Illinois Forecast to Nearly Regain 2005 Peak in 2017 Regain 2005 Peak in 2018 8,000,000 6,000,000 4,000,000 Nebraska Kansas 2,000,000 Oklahoma Wisconsin Missouri Illinois 0 2000 2001 2002 2003 2004 2005 20
Slide 13: Cement Consumption History and Outlook
Cement Consumption History and Outlook Key States, Metric Tons, PCA Nevada Recovery Expected to Mountain Forecast to be Sustained but Slower Surpass 2005 Peak in 2018 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 Wyoming 500,000 Colorado 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2
Slide 14: Highway Spending Outlook and Composition
Highway Spending Outlook and Composition Millions of Real $, PCA There is upside potential to federal spending if there is sufficient bi-partisan support $70,000 (matching funds can leverage this further) $60,000 ARR Act $50,000 $40,000 $30,000 State and Local $20,000 $10,000 Federal $0 2000 2002 20
Slide 15: EPA Regulatory Developments
EPA Regulatory Developments Final Rule Issued – Extension Granted On February 12, 2013 the EPA published the final rule amending • National Emission Standards for Hazardous Air Pollutants (NESHAP) for the Portland Cement Manufacturing Industry • New Source Performance Standards (NSPS) for Portland C
Slide 16: EPA Regulatory Developments
EPA Regulatory Developments Standards Tough to Meet, Will Chill New Capacity Addition Existing Source New Source Pollutant Standard Standard Standards for Particulate Matter 0.07 lb/ton clinker 0.02 lb/ton clinker new sources are challenging 55 lb/MM tons Mercury 21 lb/MM tons clinker to meet clinke
Slide 17: 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 18: 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 Years 11-15 16-20 21-30 31-50 Years Years Years Years Source: PCA H
Slide 19: Asphalt Costs Have Diverged Higher
Asphalt Costs Have Diverged Higher Costs Linked to Bitumen 2.2 Asphalt PPI 2.0 1.8 1.6 1.4 1.2 Concrete/Cement PPI 1.0 2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 US Department of Labor (BLS) 1/2005=100 Ppi, Mfg, Nsa, Asphalt Paving and Roofing Materials; Cement and Concret
Slide 20: 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 20
Slide 21: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure Energy Residential and Related Industry and Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates Frac Gypsum and Concrete Sand Paperboard
Slide 22: Close Relationship of End-Uses
Close Relationship of End-Uses Oil Well Cement and Now 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 servoir Energy Re 22
Slide 23: Premium Well-Casing Cement Solutions
Premium Well-Casing Cement Solutions Desirable at 250 Degrees, Required at 350 Degrees and Up Temperatures generally increase with drilling depths, but at different rates for different regions Desirable Required Conventional Cement Specialty Performance Grades Perform to Solutions Only, Degradation
Slide 24: Shifting the Cement Product Mix to Oil Well Cement
Shifting the Cement Product Mix to Oil Well Cement A Company Priority • Eagle has the capability, know-how, Eagle has been permits and customer relationships the pre-eminent required to effectively produce and US producer of market specialty oil-well cement, oil well cement especially Class H, the g
Slide 25: Oil Well Cement Long-Term Strategic Directions
Oil Well Cement Long-Term Strategic Directions A Mutually Reinforcing Growth Opportunity with Frac Sand Current Target Key Target Plant Eagle Production Production Cement Shale Capability Plant Proportion Proportion Grades Plays Status Texas Mature ~ 60% > 60% Class H Eagle Ford Lehigh capability Ma
Slide 26: Oil Well Cement Demand Outlooks
Oil Well Cement Demand Outlooks Longer Lateral Length Trends May Be Some Offset to Drilling Declines Eagle Ford Mountain Region Record Level Flat Below 2014 But Above 2013 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 26
Slide 27: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure Energy Residential and Related Industry and Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates Frac Gypsum and Concrete Sand Paperboard
Slide 28: Frac Sand is a Natural, Close Adjacency for Eagle
Frac Sand is a Natural, Close Adjacency for Eagle Key Long-Term Growth Opportunity Frac sand entry leverages Eagle’s existing • Customer base (oil well cement) • Owned distribution infrastructure that we have repurposed (Corpus Christi port terminal, proximate to Eagle Ford) • Processing expertise (
Slide 29: Geology is Destiny – Quality Scarcity
Geology is Destiny – Quality Scarcity Dark Red Represents the Outcroppings of Quartz Sand ~ 500 Million Years Old Small Universe of Areas in North America (and in the World) Studies have shown geologic conditions creating these deposits are rare across the globe. England deposits are played out, lim
Slide 30: Sandstone Formation Section View
Sandstone Formation Section View Sandstone Closest to the Surface is Even Less Common Eagle Northern White Frac Sand Mine 30
Slide 31: Mines and Key Processing Centers
Mines and Key Processing Centers Barge or Rail Reach to All Shale Plays Rail Partners Sand Mining and Processing • New Auburn, WI • Utica, IL Unique Barging System Augments Rail Sand Processing and Distribution • Corpus Christi, TX 31
Slide 32: Scale to Meet Customer Needs
Scale to Meet Customer Needs Capability to Serve a Portfolio of Targeted Shale Plays Annual Tons Today 2,500,000 • Corpus Christi from Utica: 1,500,000 • New Auburn: 1,000,000 2015 3,500,000 • New Auburn Expansion: 1,000,000 TBD 5,000,000 • Illinois Expansion: 1,500,000 32
Slide 33: Ongoing, Long-Term
Ongoing, Long-Term New Auburn Mine Utica Mine New Auburn Expansion Underway Complete March 2015 Corpus Christi Service Center 33
Slide 34: Frac Sand Demand Drivers
Frac Sand Demand Drivers Oil Prices Put Pressure on Marginal Rigs and Wells Horizontal Wells Per Lateral Stages Per Proppant Proppant Rig Count x Rig x Lengths x Lateral x Per Stage = Demand = + Mix Shift Toward Northern White Sand Over Other Proppants 34
Slide 35: Frac Sand Supply and Demand
Frac Sand Supply and Demand Growth in Both Slower Rate of Capacity Generally Growth -- in Back to 2012 Balance Pricing for Most 80 Conditions Desirable Consumption Price Grades 70 Pressure 60 for Most Brown and Desirable Fit-for-Purpose Sand Grades 50 100 M 40 Acute Shortage 40-70 30 20 30-50 10 20-
Slide 36: Proppant Demand Forecasts
Proppant Demand Forecasts Sensitive to Oil Price Outlooks Eagle Ford Permian 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Mid-Continent Bakken 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 36
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 700 MMSF Duke, OK 1,300 MMSF Albuquerque, NM Georgetown, SC 425 MMSF 900 MMSF Bernalillo, NM Lawton, OK 550 MMSF 350,000 tons Currently idled paperboard Wallboard Total Wallboard Paperboard 4 Billion SF Note: Design capacities here do not necessa
Slide 39: US Demand for Gypsum Wallboard
US Demand for Gypsum Wallboard Closely Linked with Housing 1,400 45 New Home Sales (000) 40 1,200 Wallboard Shipments (BSF) 35 1,000 30 800 25 600 20 15 400 10 200 5 0 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 39
Slide 40: Industry Wallboard Shipment Volumes Improving
Industry Wallboard Shipment Volumes Improving Gypsum Association, Square Feet, Calendar Years Annual Volume 6,000,000 Incremental 21.5 BSF 2014 volume improvement quarter-over- quarter each 2013 20.5 BSF year 5,000,000 2012 18.9 BSF 2011 17.2 BSF 4,000,000 1st Quarter 2nd Quarter 3rd Quarter 4th Qua
Slide 41: Single-Family Housing Starts Outlook
Single-Family Housing Starts Outlook Moody’s Analytics, SAAR in Millions, February 2015 2.0 Census Bureau’s population projections imply 1.28 million annual average growth in net new households between 2015 and 2020 (Harvard’s Joint Center for Housing Studies) 1.5 1.0 0.5 Severe Extended Moody’s Dec
Slide 42: Latest Regional Recovery Outlooks -- Wallboard
Latest Regional Recovery Outlooks -- Wallboard Indexed Single Family Housing Starts 200% Albuquerque, NM (Albuquerque, NM, Santa Fe, NM, Phoenix, AZ MSA’s) Duke, OK 150% (DFW-Arlington, Oklahoma City, OK, Little Rock, AR, Wichita Falls, TX, Wichita, KS MSA’s) Eagle, CO (Denver, Co, Boulder, Co, Chey
Slide 43: 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 43
Slide 44: Financial Summary
Financial Summary Profitable Performance Throughout the Cycle $1,200 Adjusted Revenues (1) $400 Adjusted EBITDA (2) $351 $994 $1,009 $1,000 $925 $300 $289 $845 $282 $800 $739 $699 $695 $220 $201 $579 $581 $600 $200 $533 $537 $501 $171 $152 $141 $131 $400 $123 $100 $105 $100 $200 $0 $0 2003 2004 2005
Slide 45: Eagle Evolution Since Peak of Last Cycle
Eagle Evolution Since Peak of Last Cycle Long-Standing Goal of Doubling Peak-to-Peak Earnings Power 1. One-third more productive capacity in place • Cement: Illinois expansion (additional 470,000 tons) • Wallboard: Ultra-efficient plant built in Georgetown, SC • Paper: 350,000 ton capacity today (27
Slide 46: Capital Structure
Capital Structure $1,200 Equity Net Debt $973 $1,000 $831 $800 $696 $ Million $600 $504 $473 $485 $375 $400 $260 $200 $- 3/31/12 3/31/13 3/31/14 12/31/14 Net Debt-to-Cap 35% 41% 31% 34% Net Debt-to-Equity 55% 70% 45% 52% 46
Slide 47: Debt Maturity Profile
Debt Maturity Profile $100.0 $81.2 $80.0 $57.0 $ In Millions $60.0 $40.0 $36.5 $20.0 $9.5 $8.0 $0.0 2015 2016 2017 2018 2019 2020 Fiscal Years 2005 Senior Notes 2007 Senior Notes 47
Slide 48: Disciplined Use of Cash
Disciplined Use of Cash $ Millions $600 $500 $400 Dividends $300 $200 Share Growth and Repurchases Improvement $100 $0 Maintenance FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY 14 FY15 YTD Note: Issued 3.5 million shares in FY 13 pursuant to the Lafarge Acquisition Assets. 48
Slide 49: Investment Summary
Investment Summary Eagle Materials • Low cost producer • Leading positions in attractive markets • Now in early innings of the up-cycle • Favorable secular demand trends, especially for cement • Recent acquisition growth increased Eagle’s cement capacity by 60% • Track record of sound strategic choi
Slide 50: Non-GAAP Reconciliation
Eagle Materials Non-GAAP Reconciliation 50
Slide 51: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted EBITDA Adjusted EBITDA represents earnings before (i) interest, taxes, depreciation and amortization, and (ii) certain other non-cash or non- routine items. Adjusted EBITDA is a non-GAAP measure that provides supplemental information regarding the operating performan
Slide 52: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted Revenue $ 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 3/31/13 3/31/14 Eagle $ 429 $ 503 $ 617 $ 860 $ 918 $ 748 $ 599 $ 468 $ 462 $ 495 $ 643 $ 898 Joint Venture (50%) 72 76 82 65 76 97 96 65 75 86 96 111 Total $ 501 $ 579
Slide 53: 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
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