Attached files
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| 8-K - FORM 8-K - EAGLE MATERIALS INC | d481521d8k.htm |
 Low
Cost
Producer
Spring
2013
Profitable
Growth
Exhibit 99.1
•
Smart Investments
•
Up-Cycle Tailwinds
•
Favorable Secular Trends
•
Low-Cost
Foundation |
 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 statements may be identified by the context of the
statement and generally arise when the Company is discussing
its
beliefs,
estimates
or
expectations.
These
statements
are
not
historical
facts
or
guarantees
of
future
performance
but
instead represent only the Company's belief at the time the statements were made
regarding future events which are subject to certain
risks,
uncertainties
and
other
factors
many
of
which
are
outside
the
Company's
control.
Actual
results
and
outcomes
may
differ materially from what is expressed or forecast in such forward-looking
statements. The principal risks and uncertainties that may affect the
Company’s actual performance include the following: the cyclical and seasonal nature of the Company’s business;
public infrastructure expenditures; adverse weather conditions; availability of raw
materials; changes in energy costs including, without limitation, natural
gas, coal and oil; changes in the cost and availability of transportation; unexpected operational
difficulties; inability to timely execute expansion opportunities; governmental
regulation and changes in governmental and public policy (including, without
limitation, climate change regulation); possible outcomes of pending or future litigation or arbitration
proceedings; changes in economic conditions specific to any one or more of the
Company’s markets; competition; announced increases in capacity in the
gypsum wallboard and cement industries; changes in the demand for residential housing construction
or commercial construction; general economic conditions; and interest rates.
For example, increases in interest rates, decreases in
demand
for
construction
materials
or
increases
in
the
cost
of
energy
(including,
without
limitation,
natural
gas,
coal
and
oil)
could affect the revenues and operating earnings of our operations. In
addition, changes in national or regional economic conditions and levels of
infrastructure and construction spending could also adversely affect the Company's result of operations.
These
and
other
factors
are
described
in
the
Company’s
Annual
Report
on
Form
10-K
for
the
fiscal
year
ended
March
31,
2012
and
in
its
Quarterly
Report
on
Form
10-Q
for
the
fiscal
quarter
ended
December
31,
2012.
These
reports
are
filed
with
the
Securities
and
Exchange
Commission.
In
addition,
with
respect
to
any
acquisition,
factors,
risks
and
uncertainties
that
may
cause
actual events and developments to vary materially from those anticipated in
forward-looking statements include, but are not limited to,
failure
to
realize
the
expected
benefits
of
the
transaction,
possible
negative
effects
of
consummation
of
the
transaction,
significant transaction costs or unknown liabilities, and general economic and
business conditions that may affect us following the acquisition. All
forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ
materially
from
expectations
expressed
herein
will
increase
with
the
passage
of
time.
The
Company
undertakes
no
duty
to
update
any forward-looking statement to reflect future events or changes in the
Company's expectations. 2 |
 Eagle Materials Business Definition
Minerals-Based Commodity Products
3
Strategy Emphasis Now
Key Demand Drivers
Competitive Advantage
Innovation Focus |
 Eagle Materials Business Definition
Minerals-Based Commodity Products
4
Strategy Emphasis Now
Key Demand Drivers
Competitive Advantage
Innovation Focus |
 Multiple Sources of Cost Advantage
5 |
 Our
Low Cost Producer Strategy
Is Also Aligned with Sustainability
Strategy Objective
Sustainability Result
Less
waste
Reduced cost
Responsible use of
resources
Less
energy
used
Reduced cost
Smaller environmental
footprint
Less mineral
resource used
Reduced cost
Greater
conservation
Less
water
used
Reduced cost
Lower energy
requirements
More recycled
resource use
Reduced cost
Beneficial use of external
waste streams
6 |
 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: Martin Marietta,
Texas Industries Inc., USG Corp., Vulcan Materials, Titan Cement Co. S.A., CRH, Buzzi Unicem S.p.A., Holcim Ltd., HeidelbergCement
AG, Lafarge S.A., Cementos Bio-Bio S.A., Cementos Portland Valderrivas, Cemex
S.A.B. de C.V., Italcementi S.p.A., Cementos Argos S.A., Headwaters Incorporated.
7 |
 Eagle Materials Business Definition
Minerals-Based Commodity Products
8
Strategy Emphasis Now
Key Demand Drivers
Competitive Advantage
Innovation Focus |
 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
“missing piece of
the puzzle”: links
east to west and
central to south
Lafarge Cement Terminals
Eagle Cement Terminals
Eagle Cement Plants
Former Lafarge Cement Plants
9 |
 Scale and Value
Increased the Size of Our Cement Business by 60%
Texas Lehigh (50%)
700
Illinois Cement
1,100
Mountain Cement
700
Nevada Cement
550
Eagle Today
3,050
Sugar Creek
1,150
Tulsa
700
Acquired Assets
1,850
Total
Eagle Post-Closing
4,900
Cement Short Tons Capacity
~$225/ton
acquisition price
10 |
 US
Cement Consumption Outlook Million Metric Tons
Source: Portland Cement Association and Eagle Materials analysis
11
New capacity is constrained for the foreseeable future, some
existing capacity may be closed in 2015 due to NESHAP compliance;
imports will be required again to meet demand |
 EPA
Regulatory Developments Final Rule Issued –
Extension Granted
12
On December 20, 2012, the EPA issued a final rule amending the
Existing Facilities
New Facilities
•
National Emission Standards for Hazardous Air Pollutants
(NESHAP) for the Portland Cement Manufacturing Industry
•
New Source Performance Standards (NSPS) for Portland
Cement Plants
•
Compliance deadlines extended until September 2015
•
Standards continue to apply to all sources which
commenced construction or reconstruction after May 6, 2009
|
 EPA
Regulatory Developments Standards Tough to Meet, Will Chill New Capacity
Addition 13
Pollutant
Existing Source
Standard
New Source
Standard
Particulate Matter
0.07 lb/ton clinker
0.02 lb/ton clinker
Mercury
55 lb/MM tons clinker
21 lb/MM tons clinker
Nitrogen Oxide
3.5 -10 lb/ton clinker
(varies)
1.5 lb/ton clinker
Sulfur Oxide
1.2-5.0 lb/ton clinker
(varies)
0.4 lb/ton clinker
Total Hydrocarbons
24 ppm
24 ppm
Hydrogen Chloride
3 ppm
3 ppm
Organic Air Pollutants
12 ppm
12 ppm
Standards
for new
sources are
challenging
to meet
individually,
as a set of
standards
potentially
beyond
proven
technology |
 Concrete/Cement Value Proposition
In Relation to Asphalt, the Leading Substitute
14
•
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 costs have always favored concrete over asphalt
•
Now
initial costs per mile as well as life cycle costs favor concrete, driven by
escalation in asphalt bitumen input costs (oil driven)
•
The cost cross-over point favoring concrete over asphalt occurred in 2008 but
has been masked by the recession and entrenched historical practices
•
Concrete has, in fact, been gaining share over asphalt since 2008
•
Outlook
is for a further strengthening of the concrete/cement value proposition
•
More
rapid
share
gains
for
concrete
are
expected
as
the
cost
and
performance
advantages
of concrete increase, as cost benefits are better understood, and as use
adaptations occur |
 Life Cycle Analysis Favors Concrete
Pavement Life Expectancy (Before Reconstruction is Required)
15
Source: PCA Highway Report |
 Asphalt Production Costs Linked to Oil/Bitumen
Asphalt Costs Diverging from Historical Relationship with Concrete
16
Sources: US Department of Labor, International Monetary Fund
|
 Asphalt Total Cost Breakdown
Bitumen Now Accounts for More Than Half the Cost (<5% the mass)
17
"Bitumen" is naturally occurring solid petroleum, the heavy and viscous
semi-solid petroleum found in oil sands, as well as refined bitumen
generated in oil distillation. Source: Industry analysis
|
 Concrete Share Has, In Fact, Been Growing
Growth Since 2008 Has Been Masked by the Recession
18
Concrete Share of Highway Paving Volume
Source: PCA June 2012, Oman Data Systems |
 Outlook and Strategic Implications
A Game Changer for Cement and Asphalt
19
•
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 prices have also driven refineries to invest in cokers to extract more
high grade products from crude --
this has meant less production of bitumen and more
production of petcoke, further extending the gap
•
Petroleum coke is a low-value solid by-products of the oil refining
industry and this is reflected in pricing --
decisions about production levels tend not to be made on
the markets for petroleum coke; it is a waste recovery by-product “priced
to move” rather than to store
•
Competition from concrete will limit asphalt’s ability to pass on costs
•
Well-positioned cement producers should enjoy increasing advantages
|
 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
20 |
 Eagle Materials Business Definition
Minerals-Based Commodity Products
21
Strategy Emphasis Now
Key Demand Drivers
Competitive Advantage
Innovation Focus |
 Close Relationship of End-Uses
Oil Well Cement and Frac Sand
22
•
Specialty oil well
cement
for casing
wells
•
Special purpose
frac sand
to keep
the fractures
“propped open”
Important elements
for unlocking energy
in the shale plays |
 Shifting the Cement Product Mix to Oil Well Cement
A Top Company Priority
23
•
Very few US cement producers have
the capability, know-how, permits or
customer relationships required to
effectively produce and market
specialty oil-well cement, especially
Class H, the grade used in the most
demanding casing applications
•
Alternative for oil services
companies is to apply additives to
more conventional grade cement to
achieve similar results –
can be
more costly and less predictable
Eagle has been
the pre-eminent
US producer of oil
well cement for
decades, well in
advance of current
secular energy
drilling trends
Strong value
proposition for
Eagle and a key
profit growth
opportunity |
 Frac Sand a Key Companion with Oil Well Cement
Both are Mutually Reinforcing Growth Opportunities
24
Eagle Plant
Current
Production
Proportion
Target
Production
Proportion
Key
Cement
Grades
Target
Shale Capability
Plays
Plant
Status
Texas
Lehigh
~ 50%
> 50%
Class H
Eagle Ford
Mature
capability
Mountain
~ 25%
> 25%
Class G
Niobrara
Mature
capability
Illinois
0%
> 25%
Class G
and H
Utica
Now
proven
Tulsa
4%
> 50%
Class C
and H
Miss. Lime,
Ardmore
Acquired,
now proven
Sugar
Creek
0%
> 25%
Class G
and H
Anadarko,
Bakken
Acquired,
feasible |
 Eagle Materials Business Definition
Minerals-Based Commodity Products
25
Strategy Emphasis Now
Key Demand Drivers
Competitive Advantage
Innovation Focus |
 Frac Sand is a Natural, Close Adjacency for Eagle
Key Growth Opportunity and a Top Eagle Priority
26
Leverages existing
•
Customer base (oil well cement)
•
Prime distribution infrastructure that can
be readily repurposed (Corpus Christi
terminal, proximate to Eagle Ford)
•
Processing expertise (aggregates)
•
Advantaged access to scarce northern
white sand resource
•
Long-standing relationships (Illinois
Cement) enabled acquisition of a 50-year
reserve scale deposit
•
Northern white sand is a preferred
proppant, issue is economic proximity
•
Opportunity to create a low-cost system |
   27
Southeast MO
Northern Illinois
MN/WI
Small Universe of Areas in North America (and in the World)
Highest
Quality
Frac
Sand
Studies have shown geologic conditions creating these deposits are rare across the
globe. England deposits are played out, limited quality deposits in
Poland, Asia/Pacific and Arabia have lower crush strengths –
implies a relatively low sand import threat.
Geology is Destiny –
Quality Scarcity
Dark Red Represents the Outcroppings of Quartz Sand ~ 500 Million Years Old
|
 Sandstone Formation Section View
Moreover, Sandstone Closest to the Surface is Even Less Common
28 |
 Northern White Sand
29 |
 Completed Entrance to Illinois Sand
Good Neighbor Landscaping
30
Quarry
Preparation |
 Corpus Christi Site Repurposing Underway
Nearly Complete
31 |
 Oil
Directed Rig Count History and Forecasts Simmons and Energy Information
Agency 32 |
 33
Drilling Activity Forecasts by Type
Baker Hughes and Spears, January 2013 |
 Unconventional Oil/Liquids Rig Count Forecast
Eagle Ford Remains the Most Important, Miss and Utica Fastest Growing
34 |
 North American Proppant Annual Demand Outlook
Simmons and Company, December 2012, annual million tons
35 |
 Estimated Available Supply and Demand
Million Tons
36
The industry may need to continue to rely on lower quality but
more proximate sand types (as well as ceramics) to close the
supply gap until new sources can be developed |
 Eagle Materials Business Definition
Minerals-Based Commodity Products
37
Strategy Emphasis Now
Key Demand Drivers
Competitive Advantage
Innovation Focus |
 Eagle’s US Market and Production Locations
38
Note: Design capacities here do not necessarily represent current operating rates
(“effective capacity”). Gypsum Wallboard
(National-Scope) Paper
Gypsum, CO
725 MMSF
Albuquerque, NM
450 MMSF
Duke, OK
1,300 MMSF
Georgetown, SC
900 MMSF
Lawton, OK
350,000 tons
Bernalillo, NM
525 MMSF
Currently idled |
 US
Demand for Gypsum Wallboard Source: US Census Bureau, company analysis
39 |
 Latest Single-Family Housing Starts Forecasts
SAAR in Millions
40 |
 Proportion of Improving Metro Markets
Percentage of 385 Metro Areas as Surveyed by NAHB
41 |
 Repair and Remodeling Outlook
Harvard’s Outlook Suggests Growing Strength into 2013
42 |
 Source: Moody’s Economy.com
Comparative Regional Recovery Outlooks
Single Family Starts, Moody’s Base Case, 2011Q2 = 1
43 |
 Financial Discipline is a Key Enabler of Success
An Eagle Hallmark
44 |
 Financial Summary
Profitable Performance Throughout the Cycle
Adjusted Revenues
(1)
Adjusted EBITDA
(2)
45
Note: Dollars in millions. For fiscal years ending March 31, except LTM as of December 31,
2012. Pro forma LTM periods include Target Assets.
(1)
Includes our proportionate share of our JV’s revenues. PF LTM Adjusted Revenues
includes revenues for the Lafarge Target Business for the 11 months ended 9/30/12.
Adjusted Revenues is a non-GAAP measure. See slides titled “Non-GAAP
Reconciliation” in the Appendix.
(2)
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
non-GAAP measure. See slides titled “Non-GAAP Reconciliation” in the Appendix.
|
 Eagle Evolution Since Peak of Last Cycle
Long-Standing Goal of Doubling Our Peak to Peak Earnings Power
46
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 originally)
2.
Cement acquisitions increased capacity by 60% December 2012
•
Two cement plants and related assets
3.
Shift of cement product mix toward oil well and other specialties
•
Class H at Texas Lehigh was less than 10% now over 50%
4.
We believe our frac sand opportunity has as much earnings
contribution potential as does cement or wallboard |
 Capital Structure
47 |
 Debt Maturity Profile
48 |
 Disciplined Use of Cash
49
Note: Issued 3.5 million shares in FY 13 pursuant to the acquisition of Lafarge
assets. |
 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 increase
Eagle’s cement capacity by 60%
•
Track record of sound strategic
choices, e.g., smart growth
50 |
 Non-GAAP Reconciliation
51 |
 Non-GAAP Reconciliation
Adjusted EBITDA
$ 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
Net Income
$ 57.6
$ 66.9
$ 106.7
$ 161.0
$ 202.7
$ 97.8
$ 41.8
$ 29.0
$ 14.8
$ 18.7
$ 58.9
Plus:
Taxes
29.0
35.2
51.4
80.1
101.6
46.6
20.4
10.3
1.9
3.2
27.1
Interest
9.6
3.8
3.3
6.3
5.4
21.1
28.9
21.5
16.5
16.6
14.3
DD&A
33.2
33.0
34.5
38.6
40.0
44.9
51.2
50.8
49.2
50.1
52.5
Other
Charges
1.4
2.2
5.5
3.2
1.8
9.7
9.8
11.0
17.9
15.9
6.8
Adjusted
EBITDA
$ 131
$ 141
$ 201
$ 289
$ 351
$ 220
$ 152
$ 123
$ 100
$ 105
$ 160
Lafarge Target Business EBITDA for 11 months ended 9/30/12 (see attached)
$ 43
Pro Forma Total Adjusted EBITDA
$ 203
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 non-GAAP measure that provides supplemental information regarding
the operating performance of our business
without
regard
to
financing
methods,
capital
structures
or
historical
cost
bases
and
is
used
as
a
benchmark
for
evaluating
the
creditworthiness
of
particular
issuers.
Adjusted
EBITDA
should
not,
however,
be
considered
as
an
alternative
to net income, operating income, cash flow from operations or any other measure of
financial performance in accordance with GAAP.
52
LTM
12/31/12 |
 Non-GAAP Reconciliation
Adjusted EBITDA
$ million
Year ended
12/31/11
9 months
ended
9/30/11
9 months
ended
9/30/12
LTM
9/30/12
Dec.
2012
(Eagle
owned)
11
months
Lafarge Target
Business Net
Earnings
$ (11)
$ 9
$ (2)
$ (4)
Plus:
Taxes
(8)
7
(2)
(3)
Interest
3
(2)
2
3
DD&A
22
(16)
16
22
Overhead
Allocation
Adjustment
28
(21)
20
27
Lafarge Target
Business
EBITDA
$ 34
$ (23)
$ 34
$ 45
$ (2)
$ 43
The following provides a reconciliation of the Lafarge Target Business EBITDA for
the 11 months ended 9/30/12: 53 |
 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
LTM
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
$ 994
$ 845
$ 695
$ 533
$ 537
$ 581
$ 694
$ 174
Pro Forma Total
$ 868
54
Lafarge Target Business Revenue for 11 months ended 9/30/12 (see attached) |
 Non-GAAP Reconciliation
Adjusted Revenue
$ million
Year ended
12/31/11
9 months
ended
9/30/11
9 months
ended
9/30/12
LTM
9/30/12
Dec. 2012
(Eagle
owned)
11 months
Lafarge Target
Business Revenue
$ 165
$ (121)
$ 138
$ 182
$ (8)
$ 174
The following provides a reconciliation of the Lafarge Target Business revenue for
the 11 months ended 9/30/12: 55 |
 MAJOR FACILITIES
GYPSUM WALLBOARD PLANTS
AMERICAN GYPSUM COMPANY LLC
Albuquerque, New Mexico
Bernalillo, New Mexico
Gypsum, Colorado
Duke, Oklahoma
Georgetown, South Carolina
PAPERBOARD MILL
REPUBLIC PAPERBOARD
COMPANY LLC
Lawton, Oklahoma
CONCRETE AND AGGREGATES PLANTS
CENTEX MATERIALS LLC
Austin and Buda, Texas
MATHEWS READYMIX LLC
Marysville, California
TALON CONCRETE AND AGGREGATES LLC
Kansas & Missouri –
10 locations
WESTERN AGGREGATES LLC
Marysville, California
CEMENT PLANTS
CENTRAL PLAINS CEMENT
COMPANY LLC
Sugar Creek, Missouri
Tulsa, Oklahoma
ILLINOIS CEMENT COMPANY LLC
LaSalle, Illinois
MOUNTAIN CEMENT COMPANY
Laramie, Wyoming
NEVADA CEMENT COMPANY
Fernley, Nevada
TEXAS LEHIGH CEMENT
COMPANY LP
Buda, Texas
(50% joint venture) |
 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@eaglematerials.com
Eagle Materials
Inc. NYSE: EXP
www.eaglematerials.com
57 |