Good day, everyone, and welcome to Eagle Materials' First Quarter and Fiscal 2020 Earnings Conference Call. This 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. Good afternoon. Welcome to Eagle Materials' Conference Call for our first fiscal quarter of 2020. We're glad that you could be with us today. Joining me today are Craig Kesler, our Chief Financial Officer, and Bob Stewart, our Executive Vice President of Strategy, Corporate Development, and Communications. There will be a slide presentation made in connection with the call. To access it please go to eaglematerials.com and click on the link to the webcast. While you're accessing these slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during the 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. Let me begin by addressing the news at the top of mind of many of our shareholders this quarter. Mainly, our announced plan to separate the heavy and light sides of our business into two independent publicly traded companies. This separation is expected to be complete in the first half of calendar 2020. We feel that both businesses are well positioned for future growth, are best in class in their respective industries, will be resilient during tough times through their low-cost producer position, and have achieved sufficient size to stand on their own. The separation of these two businesses will give each business the opportunity to focus on its distinct strategic priorities, priorities that best position each business for profitability and growth, implement their capital structure that is tailored to the needs of the business, allocate resources and deploy capital, and remain consistent with its strategic priorities. And finally, it will allow new and existing investors to value the two companies based on their pure-play operational and financial results. After the separation, the Heavy Material US-only Heartland Cement Plant system will operate as a distinct pure-play. The business will possess excellent future prospects as the largest US-owned cement producer, owning its raw material reserves that will supply its operations over the long term. Eagle's White Materials business, comprised of Gypsum Wallboard and recycled Paperboard, has a long track record of superior margin performance. These financial results are driven by sustainable, low-cost producer positions and US Sunbelt markets and its long-lived raw material reserves. This business has uniquely distinguished itself financially through the industry's business cycles, as well as achieving industry-leading levels of customer satisfaction. As we announced, creating two distinct benchmark businesses is the path we are pursuing. I think our announcements and actions show our commitment to shareholder value creation. On a related note, it is also worth commenting that we repurchased nearly $200 million of our shares during the quarter, illustrating our confidence in these businesses and their prospects. We did this repurchase without jeopardizing our financial flexibility. That is all I am prepared to comment on today regarding the separation and share repurchases. We will not answer further questions at the end of the call today about our separation process or progress. Now let me turn to our business results for the quarter. It was a mixed quarter in a number of respects. While we're approaching high levels of capacity utilization in both major businesses, this quarter only translated into modest price improvement in cement and, in fact, some price slippage in Wallboard. This month, we announced the price increase in Wallboard effective in early August as backlogs are good, but the marketplace will determine our level of success, and we'll report on that in the next earnings call. Heavy Materials revenues were up 3% due to progression on both price and volume, but operating earnings were off 5% due to increased freight costs and unusually wet weather which hampered the contributions from our concrete and aggregates in particular. We have discussed on many occasions how the cement business is indeed very regional. This was never more clearly exemplified this quarter. I was quite pleased with the price increases in our cement business attained in each of our regions except two. The lack of progress in those two regions affected the overall price progression that we posted. In both cases, it was an illustration of having to meet competitive situations. Freight logistics, of course, also played a role. Light material revenues were off 10% and operating earnings were down 21% on lower volumes and sales prices. We still see low single-digit volume growth for the full fiscal year recognizing the mixed start to this fiscal year. I might add that we are pleased with our Wallboard volumes in July, which have remained strong. Finally, I point out that although our oil and gas profits segment has been under pressure, it remained cash flow positive this quarter, a testament to the talented management team making quick decisions in response to market developments. As part of our heavy and light business separation announcement, we have indicated that we are exploring strategic alternatives for this segment, and that process is underway. Now let me turn it over to Craig to go through the financial specifics for the quarter.

Thank you, Michael. First quarter revenue was $371 million, a decline of 6% from the prior year, reflecting Wallboard sales volume and sales prices, partially offset by improved cement sales volumes and sales prices. First quarter earnings per share were $0.94. As we highlighted in the press release, the first quarter included $0.19 of non-routine expenses primarily associated with the planned separation of our heavy and light materials businesses. Turning now to the segment performance. This next slide highlights the results of our heavy material sector which includes our cement, concrete, and aggregate segments. Revenue in the sector increased 3%, driven primarily by a 3% improvement in cement sales volume and improved pricing of both cement and concrete. Operating earnings declined 5%, reflecting higher fixed and freight costs, coupled with wet weather throughout the quarter which limited our concrete and aggregate sales volume. Moving to the light material sector on the next slide. Lower Wallboard sales volumes and prices drove a 10% decline in light materials revenue; total operating earnings in our Wallboard and paperboard business declined 21% to $48 million, reflecting lower Wallboard sales volume and net sales prices, partially offset by lower recycled fiber costs. In the oil and gas profit sector, revenue was down 45%, and we had an operating loss of $4 million. Our sales volume improved 11%, reflecting the results of our new facility in Illinois. During the quarter, operating cash flow declined to $51 million consistent with the net earnings decline, and capital spending declined to $22 million. As Michael mentioned, we returned over $200 million to shareholders through a combination of share repurchases and dividends during the quarter. And finally, at June 30th, 2019, our debt-to-cap ratio was 46%. Thank you for attending today's call. We will now move to the question-and-answer session. Andrew?

Our first question comes from Trey Grooms with Stephens Inc. Your line is now open.

Hey, good afternoon. I guess the first one is on Wallboard, so the pricing down some there 6% year-over-year and I know last quarter you guys mentioned that you had ended the quarter at a lower level than average on the Wallboard pricing for the last quarter you just reported. And if you look at it this most recent quarter, how did that trend as we were kind of going through the quarter and maybe how did Wallboard pricing end this June quarter versus the average?

Yes, I get your questions right. So, yes, we averaged a little almost $151. We were a couple of dollars below that in the month of June, but in reality, we have not seen a whole lot of price movement in the last month or two. It seems to kind of stabilize here.

Okay, good to hear. And then secondly kind of along those lines with the price increase that you guys have announced for early August, are you guys seeing any pre-buy activity at all as you kind of moved in through the July timeframe or maybe even late June?

No, Trey, we haven't seen much of a tick-up that we can contribute to pre-buy activity. Generally, we're seeing the market is getting back to normal and the volumes are moving. We're happy with our July volumes, but we don't think it's tied to the pre-buy.

Okay, fair enough. And I'm guessing now with the tougher comps from the year-ago period, the pre-buy timing last year, and just the weather starting to maybe cooperate a little bit better. Is it fair to say that we're kind of tracking a little bit closer to maybe those low single digits you guys had pointed to for the full year?

Yes. Trey, as we factor out the pre-buy from the prior year, keep in mind the prior year volumes were up 8% or 9%. And so that was the unusual period. When you factor that out, volumes as we kind of said are kind of growing this low to mid single-digit type of improvement. And we seem to be on that trend.

Thank you for that. Lastly, regarding the competitive landscape in cement, it appears to be ongoing. You mentioned last year that you increased freight by 1%, which was perhaps closer to 2%. Can you provide more insights? While I recognize that weather can influence the situation, the underlying demand seems robust enough to support some healthy price movements as conditions tighten. What is your perspective on the competitive situation? Has weather played a role in this, and might we expect better behavior in the market as we move forward?

Yes, Trey, how I look at this in the comments I was happy overall with where our pricing has been going in most of our regions. This quarter, like I said, was really specific to a couple of different locations. The one I'll kind of just give you as a highlight because I'm not going to go into the specific competitive situation, but one of the areas that we tend to struggle a little bit more in is the Illinois market. And we see that as weaker, however, we also see some positives coming with that they implemented the gas tax. We see them starting to do some more investments in their infrastructure. And so we do think that is that market is a struggling market. But there is some light at the end of the tunnel on that market too that there will be some more increased demand.

Our next question comes from the line of Brent Thielmann with DA Davidson. Your line is now open.

Great. Thanks, good afternoon. Could you guys clarify the price increase for Wallboard that you announced for August?

Yes. So our price increase was effective August 3rd, and we did not give a specific amount. Those we're going to be communicated directly to customers.

Okay and then Craig that the overhang of the higher freight costs into the second fiscal quarter, can we see that as significant as what you saw in the first quarter? Should we see that alleviate, maybe just feel there?

Brent, that's a great question. We are not the only ones facing this issue. The flooding in the Midwest has started to affect various transportation methods. Barges have been unable to move due to elevated river levels, bridges have been damaged, and railroads have experienced delays. Consequently, we've had to resort to alternative transportation methods, which are more costly to reach some markets. We are hopeful that conditions will improve as we move into summer and the flooding decreases, although we haven't seen that improvement yet. While the flooding has diminished and river access has increased, some rail congestion has persisted, and we have yet to see that situation improve.

Okay and I guess just back on Wallboard, you guys obviously aren't across the country, but I'd curious if you could just talk about what you're seeing from demand perspective? I'm a little surprised to see the price slippage just given it sounds like things are pretty healthier in your end markets. Could you just talk about what you're seeing in those regions?

Yes, no problem. So whenever we have this kind of environment with the choppy housing starts, we tend to get pressure on pricing. We do see interest rates being low, and we're hoping to see an improvement in that area with it, but with the housing starts where they are and being stagnant is finally improving with it, that's when we get pricing pressure. That's what we're seeing today across each of our areas with it. The demand side has been flat to slightly improving as we talk about low single digits. And it's just because housing starts more is what we attribute the pricing pressure to.

Okay, last one probably for Craig. Can we still think about kind of a corporate G&A number in that $10 million range, I guess without these non-routine items going forward?

Yes. That would be the range.

Our next question comes from the line of Scott Schrier with Citi. Your line is now open.

Hi. Good afternoon, gentlemen. First real quick on Wallboard that the pricing, is there any regional or product mix or anything we should be considering in that number?

No. They didn't have a significant impact on these numbers.

Got it, okay. So if I look at the Wallboard margins it looks like they might have dipped just below 30%. We've only seen that I think one other time in the last five years or so. Obviously, losing $10 of pricing is tough to offset, but if I look at the production cost with or without shipping, it looks like they're roughly up 4% year-on-year on a unit basis. I suspect a lot of that would be due to the decrement on fixed costs absorption. But I'm wondering if you can help me with the year-on your bridge if what other buckets are there for thinking about energy cost, OCC or anything else that could be kind of in that margin?

Yes, absolutely, Scott. And you hit the nail on the head. You think about what are the major variable cost components of our Wallboard business; things like natural gas which remains very low, recycled fiber costs remain low and are going lower. We're fortunate that we own most of our gypsum, which comes from our own reserves. So in terms of any cost inflation, that was associated with the negative absorption of fixed cost on lower volumes. Other than that, costs would have been very strong.

Got it, thanks. And I appreciate the comments on the cement network and understand it's a regional business and, of course, pricing is different in some of those markets. Are there any of these markets where you notice strength where you're getting closer to a level where whether it's customers could be put on allocation capacity utilization tightening, where you're able to have a little bit more selectiveness in servicing closer customers by truck rather than having to eat some price in rail shipping and just a general ability to get more pricing as a tighter environment?

Yes, Scott. I think it's, you certainly feel that in some of these regions, and whatever you have logistics constraints like we saw this past quarter, that's going to put even more stress on the system. So, yes, many of these markets, as we said for a while now, we are nearly fully utilized, and that gives you some opportunities as you move the product around to make sure you're making the right volume and price decisions.

Got it. And I understand on cement, obviously, there are a lot of issues with the weather. I'm curious if you're seeing any opportunities for emergency repairs? We heard a little bit of that from an aggregate producer today, either going forward or if any of that that's solid 3% growth that you had also had a little bit of repair type work from flood damage?

In some of the markets we serve, there was flood damage, and we have projects for bridges that were washed out, road repairs, and other related work, which we will be seeing in the upcoming quarters. We did assist with some of that, but it was minor. I don't believe it had a significant impact on our volume this quarter.

Great, and if I could ask one more just on Wallboard and demand. If I think about it more holistically, is our open floor plans or has affordability driven all the home builders looking to make more affordable products, smaller floor plans in addition to the open floor plans? Does that have an impact of whether it's less Wallboard needed per start? Are you seeing any kind of whether cyclical or structural considerations from that metric?

No. We haven't seen anything like that.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is now open.

Hi. Good afternoon, everyone. In terms of the discussion around the transportation of trains in prior cycles, I think this was the point when we really got strong cement price increases, especially given the transportation advantage that you folks have for a lot of your insulated plants. And I'm wondering what's your sense on why the customer conversations are not easier considering the transportation costs for alternatives are now higher. What do you think has changed them cycle over cycle?

Yes. I think, Jerry, as Michael pointed out, the conversation varies by region. In some areas, we are very satisfied with the price improvements we've made, and those markets are performing well. However, as you've noted, one of the markets in the Upper Midwest, particularly Illinois, has experienced a slower recovery due to state issues over the past few years. This creates a markedly different conversation compared to regions in the South, for instance. Not all regions are performing similarly at this moment, but we recognize that Illinois is increasing their state gasoline tax for the first time in 30 years to invest in their infrastructure. They will catch up eventually, but they are currently lagging behind some other markets.

And could you up to- cement pricing at 1%, it sounds like you have number of states that are up. Can you just help us understand this spread in terms of pricing action? So Illinois sounds like it's probably down in mid single digits based on the qualitative comments. Can you talk about which states are at the higher end of that price increase and what's the spread in terms of pricing performance on states where better type versus ones that aren't?

Yes. While we won’t provide pricing details for each region, I can say that we are experiencing strong pricing overall. Markets like Texas and Colorado, which have shown high demand, are seeing tighter utilization rates. We are very pleased with the pricing in those areas.

And so overall the cement pricing environment, would you characterize it as a mid-cycle pause in the pricing environment, or we had such points where the variable contribution margins are so attractive in the business that it becomes harder to push pricing kind of like what we're talking about in Wallboard?

Yes. I think it's very different situations, Jerry. I think it's the regions where you have high utilization rates; we're able to achieve very good pricing improvement. They just have other regions that are a little behind, and eventually, they'll be in a similar situation where utilization rates pro and that will give you the opportunity for incremental pricing. But I don't see it as necessarily mid-cycle pause. I think each region is acting as you would expect.

Okay, and lastly on Wallboard earlier in the cycle you folks had the annual price increases. And I believe you have done away with that market structure. How are you thinking about strategically, 2020 and beyond? Are you thinking about going back to the January 1 price increases that seem to be more effective for you folks earlier on in the cycle?

Yes. Jerry, we haven't even started to look at that right now at this time. We announced a price increase for August 3rd, and we'll see what the market responds to that. And then we'll address that situation after that timeframe.

Thank you. And our next question comes from the line of Adam Thalhimer with Thompson Davis. Your line is now open.

Hey, good afternoon. I wanted to start on the cement volumes plus 3% is probably the best organic you've had in a couple of years. And it was pretty wet in the quarter; can you guys just expand on how you kind of overcame the weather?

Yes, Adam. We've been discussing weather conditions for quite a while. There's no doubt that May and part of June were very rainy. However, this situation highlights the solid demand fundamentals we observe in our business. Our regions are somewhat unique, but we did experience a noticeable improvement, and when the sun came out, that trend continued into July. This suggests that the underlying demand environment is strong. I hope we can move past these weather-related concerns, but overall, our businesses are performing well.

So I'm just curious, the 3% growth you saw in the quarter, is there any reason that couldn't accelerate in the back half of the year?

Yes. We'll try not to speculate too much, but look, the environment for our businesses is good right now. And right now, it's been shining the Sun, and business is strong.

And then lastly, how much debt are you willing to take on for share repurchases? I saw the leverage tick up to a little over 2x, which is unusual for you guys?

Yes, look, I think we continue to see value with our share. We are fortunate. We do set the situation where we have very low leverage; 2x for companies like this is not unusual. And look, it's always a balance between opportunities to continue to grow the company and when the market presents value opportunities to return that cash to shareholders. I think our history has been to be pretty financially conservative when it comes to managing the balance sheet. We understand that we operate in cyclical business, but we also understand there are opportunities in front of us. And we want to make sure that we have the balance sheet to continue to grow and manage cycles. So there's no bright mind that we put in place, but just managing appropriately given opportunities and where we are in the cycle.

Thank you. And our next question comes from the line of Phil Ng with Jefferies. Your line is now open.

Hey, guys. The two markets you called out from increased competition in cement, have pricing in that market stabilized? And I thought your commentary on cement pricing sounded pretty constructive in the last call. My question is, did the wet spring and maybe some of the flooding lead to a more challenging pricing conversation in those markets in the quarter?

Yes. So I think you would be right on the assumption that that's stabilized in those two markets. The second part of your question was to say that again.

Your commentary on cement pricing sounded pretty constructive on the last call. So did the conversations get a little more challenging late in the quarter due to the wet spring in Texas and that flooding impact as well?

Weather had some impact on that. And frankly, that was a driver for some of the conversation we have. However, as Craig stated and as I continue to state that the demand seems to be out there over this last part of the quarter. We are very happy with our 3% up on the volume side. And we, depending on weather and other factors, we see it as being a good volume of shipments over these next couple of months as long as the weather stays good.

Got it. And then on your Wallboard business, there's a price increase in the marketplace, and you commented that driver for increase you have out there is due to improved backlog and it's been pretty good. Can you provide any color on how extended your backlog is for Wallboard? And help compare it to where it was this time last year and perhaps the start of the year?

Phil, our backlog is going to be a function of single-family construction activity and as interest rates; we don't necessarily keep a backlog like you would think traditionally. But as we look at where interest rates have dropped during the last couple of months, look at our order levels, yes, we feel good as we're heading into, exiting July and into the rest of the summer.

Our next question comes from the line of Stanley Elliott with Stifel. Your line is now open.

Hey, guys. Thank you all for fitting me in. A quick question, how much is left on the current share repurchase authorization?

Yes, we have over 8 million shares remaining. Back in late May, we announced an increase in our share buyback program to purchase 10 million shares, raising the total to 10.7 million shares, and we have repurchased 2.2 million shares. Therefore, we have a substantial remaining authorization.

And some of the market I guess we talked about the Illinois market being a little challenged in terms of cement. It sounds like the funding environment certainly picked up there. Is it possible to see a cement price increase later in the year? I know that's not historically or typically what you would think to happen, or should we put more faith in something like that on the pricing side improving more into next year?

Stanley, we won't try to speculate on future price increases. And our customers will certainly be the first to know about that.

But in terms of seasonally, we should still think of it as kind of more of an April first market or an early spring market in terms of the price, even if it looks like that the funding environment is picking up?

Yes. I think it's a little too early to call any definitive day.

And our next question comes from the line of Josh Wilson with Raymond James; your line is now open.

Good evening. Thanks for taking my questions. I have a couple housekeeping items on the line. First could you update us on the CapEx guidance and discuss whether the plans to separate the business have any impact on the timing of the investments and the benefits resulting from that?

Yes, Josh, good question. No updates; all the CapEx guidance and in terms of the planned separation. We are continuing to operate business as usual and making investments as appropriate to maintain the assets and grow to the extent the opportunity presents itself.

So no change to the paperboard expansion points?

Correct, no. Looking at the quarter, capital expenditures were nearly $22 million. I would estimate that about half of that was for the paper mill expansion; it is on schedule, under budget, and should be completed in the spring.

And our next question comes from the line of Keith Hughes with SunTrust. Your line is now open.

Hi, this is Josh for Keith. So you've touched on the price increase in Wallboard that's out there. What about on the cost side? I know OCC's trended down; natural gas definitely hasn't gone up. I know that has hedged for a bit of time. How should we think about the variable cost side, they're trending through the rest of the year?

Yes, look, I think you pointed them out though and as I mentioned earlier, the other component, so those are the two major components, gas and paper; those are all trending very good for us, nice tailwind. Again, our gypsum sources are virtually locked in, so from a cost headwind and labor is not a big component of the overall cost structure. So we're in pretty good shape.

Okay, and usually paperboard I think you've historically said is a one, two quarter lag kind of where the contract structure is for when OCC kind of flows through to your paper board pricing.

That's right. That's right.

Okay. Then only last question, I know you guys don't have a decision yet, but is there any timeframe you guys have out there on the split structure? Like when you kind of come to that decision?

No, we don't have any timeline on that right now.

Thank you. That concludes today's question-and-answer session. So with that, I'll turn the call back over to President and CEO, Michael Haack, for closing remarks.

I just want to say thank you for participating in the call. And we look forward to seeing you at our next earnings call in the fall.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a wonderful day.