Prepared remarks
Good day, everyone, and welcome to Eagle Materials' Third Quarter of Fiscal 2026 Earnings Conference Call. The call is being recorded. At this time, I would like to turn the call over to Eagle's President and Chief Executive Officer, Mr. Michael Haack. Mr. Haack, please go ahead, sir.
Thank you, Drew. Good morning. Welcome to Eagle Materials conference call for our third quarter of fiscal year 2026. This is Michael Haack. Joining me today are Craig Kesler, our Chief Financial Officer; and Alex Haddock, Senior Vice President of Investor Relations, Strategy and Corporate Development. A slide presentation accompanies this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you're accessing the slides, note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call. These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call. For further information, please refer to this disclosure, which is also included at the end of our press release. In our third quarter fiscal 2026, despite the mixed construction environment, our businesses continue to perform well. We generated $556 million in revenue. Our earnings per share were $3.22, and we delivered a gross profit margin of 28.9%. In these choppy times, Eagle will continue to operate as it always has. We will control what is in our control and adjust to current market conditions to maximize profitability in both the short and long term. Our strategy is consistent. We will invest in the health and safety of our largest differentiating asset, our people, and our plans to control costs and support our customers through increased reliability, efficiency and capacity, our short- and long-term strategy with return-focused projects or acquisitions. All of this while ensuring our balance sheet remains in pristine condition. Foundational to everything we do is maintaining the highest standards of health and safety. Our annual safety conference was held in December. It is always a great opportunity to interact with the leaders of the organization to review our safety and environmental performance, pass along some important messages and set our path for continued improvement. Our journey to zero incidents is ongoing, but every employee at Eagle understands that the safety of our people always comes first. If we cannot perform a job safely, we will not perform the job. These meetings with best practice sharing and commitment from the team have allowed Eagle to maintain an industry-leading safety record. To say the least, I'm proud of all Eagle's employees and the safety culture we have built. Regarding our plants, we work to maintain the reliability of our assets, increase efficiency and capacity, which gives us operational flexibility to execute efficiently through economic cycles. This past quarter, we advanced several initiatives that convert our waste streams into revenue streams to help further improve our low-cost producer position. Let me give a few examples. In Cement, we have been able to reclaim decades-old waste streams that can be used as a source of raw materials in our production process. In our Aggregates operations, we have begun using fines and overburden to support our raw materials or extend our reserves at our Cement plants and Aggregates facilities. In the light side of our business, we are expanding the capabilities of our Republic paper mill to repurpose non-wallboard grade paper and trim rolls into higher value-add products. At American Gypsum, we are recycling 100% of our waste wallboard back into the production process, except at our Duke facility, which will also be at 100% following the completion of our modernization there. Importantly, many of these projects require minimal or no capital investment while having an outsized positive benefit on our operations. These initiatives complement some larger strategic projects we have underway that benefit our overall system reliability, capacity and profitability, namely the modernization of our Mountain Cement plant and the Duke Wallboard facility. We made good progress on both projects during the quarter, which means that our Laramie, Wyoming Cement plant should be going through its commissioning late this calendar year, followed by our Duke, Oklahoma commissioning in the second half of calendar 2027. Each investment will lower the cost structure of the respective plant, strengthen our already low-cost competitive position and deliver a strong return on investment. I'm incredibly excited for what's ahead as we are experiencing some downtime at the Mountain Cement kilns recently, increasing the justification for the modernization project. In the meantime, we can use our network of Cement plants to meet our customer needs, albeit at an increased cost. We'll continue to report on progress as we approach the end of each plant's construction timeline. With both plants coming online over the next 18 months, let me pivot now to where we think we are in the economic cycle. At Eagle, we don't operate in a way that is overly focused on short-term demand cycles. Our primary products are essential commodities, meaning demand will fluctuate. That being said, heavy materials and wallboard appear to be at different inflection points today. Our Cement and Aggregates sales volumes grew last quarter, and we believe the support from federal, state, and local infrastructure spending plus solid growth on key nonresidential end markets will continue to support our heavy materials business. As discussed last quarter, we have announced price increases for the first quarter of calendar 2026 in most of our markets, further reflecting our volume expectations for our heavy materials business. At the same time, residential construction, which drives wallboard volumes, was challenged last quarter. Current housing data reflects the affordability issues that have been plaguing the homebuilding industry for quite some time. Recent housing policy announcements, combined with more accommodative monetary and fiscal policy, recognize the fundamental need for new home construction in the U.S., so we are monitoring these developments closely. Nonetheless, as I said, our focus is on our operations, not on predicting demand. Over decades, we've demonstrated that we can operate equally well in strong economic environments and in mixed construction environments. Our low-cost producer position gives us opportunities and advantages for managing cost. In Wallboard, our sustaining maintenance costs are already low, and we benefit from the ability to flex production to match sales. Finally, as I mentioned earlier, our focus on financial discipline and balance sheet strength remains. During the quarter, we strengthened our already solid financial position by issuing $750 million in 10-year senior notes, aligning our capital structure with our ongoing investments at the Laramie, Wyoming Cement plant and Duke, Oklahoma Wallboard plant. While making significant progress on our major capital projects, we increased our return of capital to shareholders. During our fiscal third quarter, we returned nearly $150 million to shareholders through our dividend and share repurchases. Our leverage ratio of 1.8 times allows us to navigate cycles and stay in growth mode even as our end markets have endured choppiness. Craig, with those comments, I will now turn it over to you.
Thank you, Michael. Third quarter revenue was $556 million, down slightly from the prior year. The decrease reflects lower wallboard and paperboard sales volume, partially offset by higher cement sales volume and the contribution from the recently acquired Aggregates business. Third quarter earnings per share was $3.22, down 10% from the third quarter of fiscal 2025. The decrease reflects lower net earnings, mostly the result of lower wallboard sales volume, offset by a 5% reduction in fully diluted shares due to our share buyback program. Turning now to segment performance. In our Heavy Materials sector, which includes our Cement and Concrete and Aggregates segments, revenue was up 11%, driven primarily by a 9% increase in cement sales volume and a 22% increase in concrete and aggregates revenue. Aggregate sales volume was up 81% to a record 1.6 million tons, reflecting a 34% increase in organic aggregates sales volume and the contribution from the recently acquired Aggregates business. Operating earnings were up 9%, driven primarily by the 9% increase in cement sales volume. As Michael mentioned, cement price increases have been announced in most of our markets to take effect in the first part of calendar 2026. Moving to the Light Materials sector on the next slide. Revenue in the sector decreased 16% to $203 million, reflecting lower wallboard and recycled paperboard sales volume and a 5% decline in wallboard sales prices. Operating earnings in the sector were down 25% to $73 million, primarily because of lower wallboard sales volume and prices. Looking now at our cash flow. We continue to generate strong cash flow and allocate capital in a disciplined way, in line with our strategic priorities. During the first nine months of the fiscal year, operating cash flow increased 5% to $512 million. Capital spending increased to $295 million. Most of this increase was associated with the modernization and expansion of our Mountain Cement plant in Laramie, Wyoming and the modernization of our Duke, Oklahoma Wallboard plant. Considering these two projects as well as our sustaining capital spending, we expect total capital spending in fiscal 2026 to be in the range of $430 million to $450 million. During our fiscal third quarter, while investing in these growth projects, we also significantly increased our shareholder distribution. We returned nearly $150 million to shareholders through our quarterly dividend payment and the repurchase of approximately 648,000 shares of our common stock. Through the first nine months of fiscal '26, we have repurchased approximately 1.4 million shares or 4% of our outstanding. We have approximately 3.3 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. As Michael mentioned, during the quarter, we further strengthened our financial position by issuing $750 million of 10-year senior notes with an interest rate of 5%. This issuance enhances our debt maturity schedule, increases committed liquidity, and aligns our capital structure with the long-term investments we're making at our Mountain Cement plant and Duke Wallboard facility. We also used a portion of the proceeds to repay our bank credit facility. At December 31, 2025, our net debt-to-cap ratio was 48% and our net debt-to-EBITDA leverage ratio was 1.8 times. We ended the quarter with $419 million of cash on hand. Total committed liquidity at the end of the quarter was approximately $1.2 billion, and we have no meaningful near-term debt maturities, giving us substantial financial flexibility. Thank you for attending today's call. We'll now move to the question-and-answer session. Drew, I'll throw it back to you.
Questions and answers
The first question comes from Trey Grooms with Stephens Inc.
Cement volume has increased significantly again this quarter, along with organic Aggregates volume. You mentioned several areas of strength in the press release, such as infrastructure and data centers. Can you elaborate on whether this demand is widespread across your markets or more concentrated in specific regions? Also, has this strength continued as we have started into calendar year 2026?
Yes, Trey, I would say that the demand is quite broad across our markets. As we approach 2025, a year ago we were optimistic about infrastructure and some key nonresidential markets, and those expectations have largely been met. Given our national presence, we maintain that optimism heading into 2026, particularly regarding infrastructure and nonresidential markets. It can be challenging to identify trends in January and February due to winter weather, something we've experienced recently, but we remain optimistic as we enter 2026.
Good deal. Okay. And kind of sticking with Cement, the margins impacted a bit here or down a little bit here. I understand there was maybe a slight decline in pricing, but volume again here was strong like we discussed. Can you talk about what's driving the margins there? I didn't see anything kind of unusual called out in the press release as far as maintenance or anything, but just if you can maybe touch on the margins in Cement.
Yes. I mean, look, costs were largely in line. We did have some raw material costs, purchased raw materials costs that were up this quarter. But maintenance was largely in check. Fuel costs, as we've talked about, have been largely in line. So nothing stands out significant.
Okay. Fair enough. My last question is about Wallboard pricing. I noticed a slight decline of about 3% sequentially, which isn't overly surprising. Has this pricing trend continued into January? How should we consider the direction of Wallboard pricing in the near term, especially given the lower demand levels with no significant changes expected? Any insights you could provide on this would be helpful.
Yes, you hit on it, Trey. The annual shipments for calendar '25 for Wallboard came in at about 25.4 billion square feet. That's back to a 2018 pace. So in this type of residential market, not at all surprised to see pricing have some downward trend. But again, very range bound relative to what we've seen and certainly relative to the demand environment that we're in. So not surprised by that at all.
Yes, I believe you still think there have been many changes in the industry and the cost structure we have discussed for years. These changes might have resulted in a pricing environment that is somewhat structurally higher over the long term. So would you say that some modest declines could still be expected, but these changes mean we shouldn’t anticipate a return to the drastic price fluctuations we experienced over ten years ago?
Yes. No, exactly. Given all the changes that have happened with raw material costs, this is what you would have expected to see happen, a pretty range-bound pricing environment even in light of a very difficult residential environment. So I don't see anything changing from that perspective. I do think there's upside on pricing as we get housing to recover and back to a reasonable level of construction activity. I think you'd see that fairly quickly. But in the current environment, yes, I still think prices are relatively range-bound.
The next question comes from Brent Thielman with D.A. Davidson.
I wanted to follow up on the Wallboard segment, which has seen a 14% decline in shipments. I’m curious whether this trend is consistent across all regions or if some areas are performing better than others.
No, that was pretty consistent across our regions. And if you look at the total GA numbers, they were down 8%. Our regions underperformed that. So our business was pretty much in line with the regional performance.
Okay. And then on the Lehigh JV, Craig, I guess, has been anticipating some improvement in terms of the profit contribution. Just wanted to get a sense of what we're seeing here in the December quarter sort of indicative of the market trends? Or there's still some operational noise under the hood there?
Yes. The plant is performing better. Texas was likely our most challenging market, both in terms of pricing and demand as well as its competitive dynamics. I understand Trey previously asked about demand and pricing across the U.S. We've remained quite stable in every location, except Texas, which faced the most pressure. Essentially, we needed to adjust our pricing more in that area, which diminished some of the profit benefits from improved plant operations.
Okay. All right. I appreciate that. Maybe just last quick one. Just in terms of the proposed price increases in Cement here to start the year, I think typically, you do some in January and some in spring. I mean, just from past experience, obviously, terrible weather across the country. Does that potentially push some of this more into the spring? Any thoughts around that?
Yes, Brent, I would say we have terrible spring every January and February. So yes, look, the volume improvement we saw here in calendar '25 is really good to see in terms of the incremental pricing opportunity as we head into calendar '26. We do have increases out there, as we talked about, they're spread throughout here in the first couple of months of calendar '26. Exact realization, we'll certainly update everybody on. But we have the volume momentum, and that's a good sign and expect that to continue here into calendar '26.
The next question comes from Anthony Pettinari with Citigroup.
This is Asher Sohnen on for Anthony. I was just wondering how we should think about maybe natural gas costs for Wallboard and Cement in the fiscal fourth quarter. I think natural gas prices have risen pretty meaningfully in recent weeks. So I'm just wondering how you guys are looking at that.
Yes. It's really more of a Wallboard thing. In Cement, you're going to burn typically more solid fuels than natural gas. In Wallboard, we do have a hedging program in place. So we're a little more than 50% hedged here through the winter, which is where we like to be because you will see these spikes when you get these winter storms that pop up. And I think that's what's driven natural gas here in the last week or so with the colder temps. Fully expect that to come back down more in line. There's not something that's structurally changed in the natural gas markets. So just a short period here during the winter, and we've got a good hedge position from that.
Okay. Great. And then one more for me. I mean with the pressure in Wallboard, it seems like it's coming a lot from new build. But I was wondering if you could talk about roughly what portion of the business is repair and remodel. I know it's a little bit smaller, maybe harder to estimate. And then what trends you might be seeing in that end market if you're able to get that visibility?
Yes. No, it's a good question. We talk about a lot of the new residential construction activity, but repair and remodel is, call it, one-third of the demand profile for Wallboard. And it's certainly meaningful and has been growing over the last many years. And it's a much steadier market, harder to get forecast data exactly, but at least the forward look there continues to see low single-digit type of growth and a very meaningful market for us. So it's a good question.
The next question comes from Timna Tanners with Wells Fargo.
I was hoping to follow up on the comments or questions about the upcoming quarter, if you had any specific observations on any impact to your operations from these storms? Anything you can comment on there?
As it relates specifically to the winter storms, our folks have done a really, really good job of preparing the facilities for very extreme cold temps, weather-proofing lines, raw material lines and things like that. So from the winter storm perspective, our folks and our plants are ready for it.
Okay. I appreciate that. And then I was wondering if you can get into some more specific about what you're seeing about Cement imports. I think that's what you're alluding to in terms of Texas and California, but any updated observations there?
Yes. When considering the markets that could be influenced by imports, it truly depends on the freight rates and various factors involved. However, Texas is also experiencing changes beyond just imports. There's been a shift in the market structure in Texas, particularly with ownership changes. These transitions lead to differences in how plants operate and view market dynamics. The plants that have changed ownership represent a significant portion of production within Texas, and their new owners have different strategies. As a result, we are seeing varying competitive pressures in Texas. While imports do affect the market as you get closer to the coast, it’s not solely about imports; there are multiple factors influencing the situation, which has prompted us to react to these competitive pressures.
Got it. Helpful. And then just finally from us on the CapEx comments, it seems like it was lowered from prior numbers. I'm just wondering if there's any basis or explanation for that.
No. Thanks, Timna, for bringing that up. We have been forecasting closer to $500 million. It's just timing. When you get these very, very large projects like Mountain Cement and the Duke plant, it's hard to exactly forecast when spending will occur. Nothing to change there. And then sustaining capital, we look very hard at what spending needs to occur there. And in light of the elevated capital spending, we've done a good job of prioritizing more of the sustaining capital, which ends up with a slightly lower number.
The next question comes from Adam Thalhimer with Thompson, Davis.
I wanted to start on capital allocation. How are you guys thinking about share repurchases and acquisitions after the November bond deal?
Yes. Look, that's where we spend a lot of our time. We've positioned the assets well. We've got a good group of operators. And so how we continue to allocate capital to generate value is where we spend the majority of our time. As we've said, and this really hasn't changed over decades, and that is the priority is to continue to grow the organization. But with a high bar for that growth, both strategically and financially and whether that's M&A or organic. So we have the two large organic projects underway, very excited about those and the returns they will generate. But we've also got a balance sheet that we can continue to pursue M&A activity, but remaining very disciplined on valuation there. And then you have our capital return strategy, and we certainly repurchased more shares this quarter than we had in quite some time. And some of that's also relative to the stock price. And so we still see value in the shares. But we're fortunate we can continue to kind of have a balanced offense across all three of those.
Great. And then I wanted to ask about Wallboard margins. Can you talk a little bit about the puts and takes there? And I guess what I'm really getting after is if margins could stabilize at that Q3 level?
Yes. Look, I think we talked about we saw some sequential price declines there. I still think they're moderated given the structure and the changes that have occurred. Cost-wise, OCC continues to be at a pretty low level. Natural gas, again, it fluctuates a little bit during the winter, but don't see that as a long-term change. We own our primary raw materials. So nothing significant on the cost side that we're looking at today. But in a volume environment, we'll see where that goes. But we've positioned the business to continue to perform at this high level even in this difficult environment for residential construction. So I think we'll continue to see good performance.
Okay. And last one for me. The Wallboard comps get a lot easier starting in late calendar '26. I'm just curious if there's any reason for optimism on volume stabilization or maybe even a little bit of growth as we get to the back half of the year.
Yes. Look, there's a lot of moving parts when it comes to homebuilding right now. So I would say our optimism is around how well our assets are positioned, the cash flow that we're generating even in this environment and our ability to continue to make good return investments. So we'll deal with the choppiness. When it does recover, I think it recovers meaningfully, and you'll see a significant upward inflection there, but maybe a little early to call that.
The next question comes from Philip Ng with Jefferies.
Michael, great color on the Texas market for Cement. Are you seeing any other regions where you're seeing price competition be a little more elevated perhaps in the West? I know the last earnings call, you guys announced an $8 per ton cement price increase in all the markets except Texas and the West. Have you announced price increases in those markets? And any early read on how the Jan increase is progressing? Are you seeing any traction? Or are you seeing some pushback here?
It's a great question. When we look across the U.S., we're very pleased with the rest of our markets. Each market operates independently in terms of supply and demand dynamics. Overall, we've implemented price increases in most of our network. Texas remains the most challenging market. However, the other markets are structurally in a good position. We're not highlighting any concerns there. What will be crucial in the coming months is how we engage with our customers to determine the specifics of the price changes, whether they occur in January or April, which will depend on individual market conditions.
Okay. That's helpful. And then I guess a question for you, Craig. Wallboard prices bled a little bit, right? No surprise there just given the dynamic on the homebuilding side. Are you expecting prices to kind of stabilize here and some of the weakness? Is that destocking related? Or it's just kind of normal trends in terms of underlying demand? How should we think about the wallboard side of things?
In my opinion, it's not really destocking. It's just that it's a perishable product, so it can't be stored outside and relies on indoor storage at our manufacturing facilities and distributors. As we've mentioned before, I'm not surprised by some pricing weakness, but it's all relative. Prices are down, but not as much as in previous cycles, especially considering the current demand level. Utilization rates are higher due to some raw material challenges. I believe pricing will remain within a certain range. While I wouldn't be shocked to see some further decline, it's all relative, particularly in comparison to the current demand situation.
Got you. And just kind of one final question on the Wallboard side. Two of, I believe, your larger customers on the Pro distribution side now are owned by big box. I'm just curious, as you kind of look into 2026, have that relationship dynamic changed any way in terms of how you're talking about procurement conversations? Is it the same people or it's kind of merge where you have the retail side versus the Pro side having one conversation and any movement from a placement standpoint we should be mindful of this year?
Yes, Phil, I think it's probably a little early to have that definitive. As you mentioned, there are very different business models between traditional retail and mass distribution. How they manage those could determine whether they run them together or keep them independent since they are so different. So it's something that we'll continue to monitor, but it may be a bit early to discuss that.
The next question comes from Keith Hughes with Truist.
A couple of questions on Wallboard. Given the volume, did you have to take extra downtime in the December quarter you kind of were expecting, and same thing on the March quarter, we have some of that just given where housing is and where the trends are.
Keith, like we've always done, you match the production with the sales opportunity. It's more of a variable cost business, very different from Cement. You can run a Wallboard plant seven days a week, you can run it four days a week. So you'll certainly modulate shifts depending upon the opportunity.
Okay. Regarding Cement, I know you implemented price increases. When will you be able to provide a clear outlook on pricing for the year? Will this become clear in March, or will it take until the second quarter for prices to stabilize?
It's really going to depend on our conversations with our customers and the specifics of each market. We'll provide updates each quarter, and you'll see in the financial results where we implemented price increases and when. Our current focus is on the timing of these increases. We've announced them in those markets, and it's just a matter of determining the timing that makes the most sense for us and our customers.
The next question comes from Garrett Greenblatt with JPMorgan.
I was wondering if you just touch on Cement pricing once again in terms of what have you announced in your current letters that you've already sent? And then maybe something like a low single-digit volume growth year for Cement, what has been the historical realization rate?
Yes. The announced price increases are around $8 a ton for most markets in the U.S., excluding Texas and the Far West. The timing for these increases is expected to occur between January and April, mainly in the first part of calendar year 2026. As Michael mentioned earlier, pricing will vary significantly by region rather than being based on a national average. Currently, we are coming off calendar year 2025, which marks the first year in the last three where we have seen an improvement in volume. This increase has positively affected utilization rates. Heading into calendar year 2026, there is optimism that continued volume growth will further push utilization rates higher.
And then just a follow-up on Wallboard. How did those demand trends, I guess, progress through the fourth quarter? Was there any momentum coming into calendar 1Q?
Look, it's been pretty consistent here in the second half of the year, which I think is pretty consistent with what the homebuilders have been reporting and others within kind of this light building materials sector, where the second half of the year had a meaningful drop in demand profile. So I think as we head into calendar '26, again, you've got some winter issues here, but expect to continue to see a similar trend.
This concludes our question-and-answer session. I would like to turn the conference back over to Michael Haack for any closing remarks.
Thank you, Drew. As we enter the final quarter of our fiscal year, we continue to prioritize health and safety, operational excellence and financial discipline while seeking growth opportunities that meet our strategic and financial criteria. I look forward to elaborating more on our strategic priorities next quarter as we wrap up our fiscal year 2026. Thanks to everyone for joining our call today.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.