Eagle Materials Inc · NYSE:EXP
Eagle Materials — Investor Presentation (February 2014)
66 slides from Eagle Materials's investor presentation, February 2014
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 press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking s
Slide 3: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure 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 Low Cost Producer Focus
Eagle Materials Low Cost Producer Focus 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 Paperb
Slide 5: Multiple Sources of Cost Advantage
Multiple Sources of Cost Advantage Lowest 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 Sig
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: Shareholder Value Creation Track Record - TSR
Shareholder Value Creation Track Record - TSR Some Say “The Best Predictor of Grades is Grades” 100% 1-Year 50% 0% 200% 3-Year 100% 0% 2000% Since Inception 1000% (April 15, 1994) 0% Eagle Materials Direct Peers (median) Industry Peers (median) Source: Longnecker & Associates. All measures are as of
Slide 8: Eagle Materials Business Definition
Eagle Materials Business Definition Minerals-Based Commodity Products Infrastructure and Energy Residential and Related Industry Commercial Construction Materials Materials Construction Materials Construction Oil Well Gypsum Cement Cement Wallboard Aggregates Frac Gypsum and Concrete Sand Paperboard
Slide 9: Central US Cement System
Central US Cement System Latest Acquisitions Are Now Fully Integrated • Kansas City and Tulsa cement plant acquisitions (Nov. 30, 2012) link east-to-west Nevada Nevada and central-to- Cement Cement Mountain Mountain Cement Cement Kansas City, MO Illinois Illinois Cement Cement south Tulsa, OK K Tuls
Slide 10: System Scale
System Scale Acquisitions Increased Cement Capacity by 60% Cement Short Tons Capacity (000) Texas Lehigh (50%) 700 Illinois Cement 1,100 Mountain Cement 700 Nevada Cement 550 Central Plains Kansas City 1,150 Central Plains Tulsa 700 Total 4,900 10
Slide 11: US Cement Consumption Outlook
US Cement Consumption Outlook Million Metric Tons 120 • New capacity -- and capacity expansion -- is US Capacity ? constrained for the foreseeable 90 future • Some existing capacity may be closed by 2015 due to NESHAP compliance 60 • Imports will be required again to meet demand regardless 30 Non-Re
Slide 12: 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 12
Slide 13: 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 14: 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 15: Highway Spending Outlook and Composition
Highway Spending Outlook and Composition Millions of Real $, PCA $70,000 $60,000 ARR Act $50,000 $40,000 $30,000 State and Local $20,000 $10,000 Federal $0 2000 2002 2004 2006 2008 2010 2012 2014 2016 15
Slide 16: 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 17: 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 18: 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 19: 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 20: Asphalt Production Costs Linked to Oil/Bitumen
Asphalt Production Costs Linked to Oil/Bitumen Asphalt Costs Diverging from Historical Relationship with Concrete 300 Asphalt PPI $300 Dec 1984 =100 $250 200 $200 Ready Mix PPI Dec 1984 =100 Crude Oil $150 $/Barrel 100 $100 $50 0 $0 Dec-84 Dec-90 Dec-96 Dec-02 Dec-08 Sources: US Department of Labor,
Slide 21: 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 21
Slide 22: Outlook and Strategic Implications
Outlook and Strategic Implications A Game Changer for Cement and Asphalt • The price of asphalt is expected to continue to diverge from the price of concrete as oil price inflation remains higher than the cost inflation of the fuels used in producing cement (e.g., petcoke, shale gas) • High oil pric
Slide 23: PCA Projected Initial Bid Paving Costs
PCA Projected Initial Bid Paving Costs Per Two Lane Road Mile - Urban Parity achieved in Fiscal 2009 Bid costs do not consider life-cycle costs – which further favors concrete $1,200 Asphalt $1,000 $800 $600 Concrete $400 $200 2003 2005 2007 2009 2011 2013 2015 23
Slide 24: 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 Frac Gypsum and Concrete Sand Paperboard
Slide 25: 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 25
Slide 26: 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 27: Shifting the Cement Product Mix to Oil Well Cement
Shifting the Cement Product Mix to Oil Well Cement A Company Priority • Very few US cement producers have the capability, know-how, Eagle has been permits or customer relationships the pre-eminent required to effectively produce and US producer of market specialty oil-well cement, oil well cement es
Slide 28: Oil Well Cement Strategic Directions
Oil Well Cement 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 ~ 50% > 50% Class H Eagle Ford Lehigh capability Mature Mount
Slide 29: Eagle Ford – Cement Consumption Outlook
Eagle Ford – Cement Consumption Outlook Continued Growth is Expected Estimated Annual Oil Well Cement Demand Increasing drilling and Outlook activity and newer drilling technologies (e.g., cemented liners) should continue to drive growth in cement consumption South Texas represents ~15-20% of US oil
Slide 30: 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 Frac Gypsum and Concrete Sand Paperboard
Slide 31: Frac Sand is a Natural, Close Adjacency for Eagle
Frac Sand is a Natural, Close Adjacency for Eagle Key Growth Opportunity and a Top Eagle Priority 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) • Process
Slide 32: 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 33: Sandstone Formation Section View
Sandstone Formation Section View Sandstone Closest to the Surface is Even Less Common Eagle Northern White Frac Sand Mine 33
Slide 34: Key Northern White Sand Sources
Key Northern White Sand Sources Top Players Currently Wisconsin (Top Quality) ~ 10 million tons capacity 1. Badger Mining Minnesota (Top Quality) 2. Unimin ~ 4 million ton capacity 3. Fairmount • Unimin 4. EOG Resources Illinois (Top Quality) ~ 6 million tons capacity 1. US Silica 2. Unimin 3. Fairm
Slide 35: Eagle's Illinois Mine
Eagle’s Illinois Mine Northern White Frac Sand Mine Entrance 35
Slide 36: Frac Sand at Corpus Christi
Frac Sand at Corpus Christi Destined for the Eagle Ford 36
Slide 37: Corpus Christi Site Repurposed, Now Operational
Corpus Christi Site Repurposed, Now Operational Third-Party Sand Used to Initialize Processing/Logistics Systems 37
Slide 38: Growth in US Rig Activity, Oil and Gas
Growth in US Rig Activity, Oil and Gas BHI, Spears and Associates • The demands of the oily plays are a good fit with our northern white sand • Horizontal drilling is the most frac sand intensive 38
Slide 39: Unconventional Oil/Liquids Rig Count Outlook
Unconventional Oil/Liquids Rig Count Outlook Key Shale Plays Rig Count Totals 300 2012 AV 876 250 200 2013 YE 858 150 2014 YE 966 100 50 0 Mid-Continent = Granite Wash, Mississippian, Cana 39
Slide 40: Oil and Gas Price Outlooks
Oil and Gas Price Outlooks Oil is Expected to Trade in the $90-100 Range $110 $5.00 WTI Price NY Merc Spot Gas Natural Gas Price per MCF WTI Price per Barrel $100 $4.00 $90 $3.00 $80 $2.00 2011 2012 2013 2014 2015 WTI Price $94.73 $94.28 $97.02 $90.00 $92.50 NY Merc Spot Gas $3.93 $2.74 $3.62 $3.85
Slide 41: US Liquids-Focused Threshold Economics
US Liquids-Focused Threshold Economics Compelling After-Tax Rates of Return at Expected Oil Prices Eagle Ford Eagle Ford Mississippi DJ Granite Bakken Bakken Oil Condensate Lime Niobrara Wash Shale Parshall 10% $53.31 $51.53 $48.45 $59.30 $43.16 $62.86 $44.13 15% 60.99 64.49 59.90 68.23 56.17 71.48
Slide 42: North American Proppant Annual Consumption
North American Proppant Annual Consumption Annual million tons, estimated 50 46 40 36 34 30 27 20 17 10 0 2009 2010 2011 2012 2013 42
Slide 43: Estimated Available Supply and Demand
Estimated Available Supply and Demand Million Tons High quality northern white sand is increasingly the proppant of choice, especially in oily plays. The industry is relying on lower quality but more 50 proximate sand types (as well as ceramics) to meet total demand. 40 30 Inferior Sand Types 20 Hig
Slide 44: Latest Trends: More Proppant, Higher Productivity
Latest Trends: More Proppant, Higher Productivity View Echoed by Other Operators in Investor Presentations From Penn Virginia December 2013 investor presentation 44
Slide 45: Jones Energy - Wells Fargo Investor Conference
Jones Energy - Wells Fargo Investor Conference Latest Approaches Are Much More Proppant-Intensive Open Hole Completion System Cased + Perf Old New Multiple Type Open Hole Completion System Cased + Perf Stages 20 23 Spacing (ft) 210 60 Prop (MMlb) 1.5 6.9 4.6x Fracture Area (ft3 ) 16,000 69,000 4.3x
Slide 46: Eagle Ford – Proppant Demand
Eagle Ford – Proppant Demand Growth is Expected Annual Proppant Demand Outlook Demand growth over the next two years is expected to approximate our newly installed drying capacity at Corpus Christi Demand estimates for 2013 range from 8 to 13 million tons Demand will be affected by adoption rates of
Slide 47: 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 48: 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 49: US Demand for Gypsum Wallboard
US Demand for Gypsum Wallboard Closely Linked with Housing 40 1,200 New Home Sales (000) 35 BSF Gypsum Wallboard Shipments 1,000 30 800 25 20 600 15 400 10 200 5 0 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Slide 50: Single-Family Housing Starts Outlook
Single-Family Housing Starts Outlook Moody’s Analytics, SAAR in Millions, January 2014 Harvard Joint Center for Housing Studies “conservative” case: 16 million housing units needed 2010-20 (implies an average of 1.6 2.0 million/year -- household formations alone are 1.3 million) 1.5 Average Annual H
Slide 51: Latest Regional Recovery Outlooks -- Wallboard
Latest Regional Recovery Outlooks -- Wallboard Indexed Single Family Housing Starts, 2013Q4=100% 300% Albuquerque, NM (Albuquerque, NM, Santa Fe, NM, Phoenix, AZ MSA’s) Eagle, CO (Denver, Co, Boulder, Co, Cheyenne, WY, Salt 250% Lake, UT MSA’s) Duke, OK (DFW-‐Arlington, Oklahoma City, OK, Li9le Roc
Slide 52: Repair and Remodeling Outlook
Repair and Remodeling Outlook Harvard’s January 2014 Four-Quarter Outlook is Robust 52
Slide 53: 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 53
Slide 54: Financial Summary
Financial Summary Profitable Performance Throughout the Cycle $1,200 Adjusted Revenues (1) $400 Adjusted EBITDA (2) $351 $994 $1,000 $925 $889 $300 $289 $845 $800 $699 $695 $220 $216 $201 $579 $581 $600 $200 $533 $537 $501 $152 $141 $131 $400 $123 $100 $105 $100 $200 $0 $0 2003 2004 2005 2006 2007 2
Slide 55: 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 • Paper: 350,000 ton capacity today (270,00
Slide 56: Capital Structure
Capital Structure Net Debt-to-Cap 38% 35% 41% 32% Net Debt-to-Equity 62% 55% 70% 48% $805 ($ Millions) $696 $462 $473 $485 $385 $285 $260 3/31/11 3/31/12 3/31/13 12/31/13 Equity Net Debt 56
Slide 57: Debt Maturity Profile
Debt Maturity Profile $100.0 $81.2 $80.0 $ In Millions $60.0 $57.0 $40.0 $36.5 $20.0 $9.5 $8.0 $0.0 2014 2015 2016 2017 2018 2019 2020 Fiscal Years 2005 Senior Notes 2007 Senior Notes 57
Slide 58: Disciplined Use of Cash
Disciplined Use of Cash $ Millions $600 $500 Dividends $400 $300 Growth and Improvement $200 Share Repurchases $100 $0 Maintenance FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Note: Issued 3.5 million shares in FY 13 pursuant to the Lafarge Acquisition Assets. 58
Slide 59: 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 and frac-sand • Recently acquired assets have increased Eagle’s cement capacity by 60% • Track record of so
Slide 60: Non-GAAP Reconciliation
Eze: Materials Non-GAAP Reconciliation 60
Slide 61: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted EBITDA Adjusted EBITDA represents earnings before (i) interest, taxes, depreciation and amortization, (ii) certain other non- cash or non-routine items, and (iii) acquisition costs and other overhead costs allocated to the Lafarge Target Business. Adjusted EBITDA is
Slide 62: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted EBITDA The following provides a reconciliation of the Acquired Assets EBITDA for the 8 months ended 11/30/12: 6 months ended 2 months ended $ million 8 months 9/30/12 11/30/12 Acquired Assets Net Earnings $ 5 $ 4 Plus: Taxes 3 3 Interest 1 1 DD&A 11 3 Overhead Alloca
Slide 63: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted Revenue PF $ 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 Eagle $ 429 $ 503 $ 617 $ 860 $ 918 $ 748 $ 599 $ 468 $ 462 $ 495 $ 643 Joint Venture (50%) 72 76 82 65 76 97 96 65 75 86 96 Total $ 501 $ 579 $ 699 $ 925 $ 9
Slide 64: Non-GAAP Reconciliation
Non-GAAP Reconciliation Adjusted Revenue The following provides a reconciliation of the Acquired Assets revenue for the 8 months ended11/30/12: 9 months ended 2 months ended $ million 8 months 9/30/12 11/30/12 Acquired Assets Revenue $ 112 $ 38 $ 150 64
Slide 65: Major Facilities
M A J O R FA C I L I T I E S CEMENT PLANTS CONCRETE, AGGREGATES, SAND PLANTS GYPSUM WALLBOARD PLANTS PAPERBOARD MILL CENTRAL PLAINS CEMENT CENTEX MATERIALS LLC AMERICAN GYPSUM COMPANY REPUBLIC PAPERBOARD COMPANY LLC Austin and Buda, Texas Albuquerque, New Mexico COMPANY LLC Sugar Creek, Missouri MAT
Slide 66: Contact Information
Contact Information Steve Rowley President and CEO (214) 432-2020 [email protected] Craig Kesler Executive Vice President and CFO (214) 432-2013 [email protected] Bob Stewart Executive Vice President, Strategy, Corporate Development and Communications (214) 432-2040 bstewart@eaglem
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