Eagle Materials Inc. (NYSE: EXP) today reported financial results for the third quarter of fiscal 2020 ended December 31, 2019. Notable items for the quarter are highlighted below (unless otherwise noted, all comparisons are with the prior year’s fiscal third quarter):

Third Quarter Fiscal 2020 Results

• Third quarter revenue of $350.2 million, up 5%
• Net loss per diluted share of $2.77, down 323%
  • Asset impairments of $224.3 million related to the Oil and Gas Proppants business were the principal factor contributing to the net loss for the quarter
• Adjusted earnings per share of $1.51, up 22%
  • Adjusted earnings per share is a non-GAAP financial measure calculated by excluding non-routine items in the manner described in Attachment 6
• Net loss of $114.6 million, down 299%
• Adjusted EBITDA of $118.7 million, up 6%
  • Adjusted EBITDA is a non-GAAP financial measure calculated by excluding non-routine items in the manner described in Attachment 6

Commenting on the third quarter results, Michael Haack, President and CEO, said, “We are pleased that during the third quarter of fiscal 2020 we capitalized on robust underlying demand across our geographic footprint to achieve a 5% revenue improvement. Notably, our Cement sales volume was up 7% to a record 1.4 million tons. Market demand for our Wallboard also remained healthy, with shipments up 2%. Our operational cost-control initiatives and continued strong operational execution also contributed to the favorable third-quarter performance.”

Mr. Haack concluded, “The outlook for calendar 2020 is positive. We expect demand for our building materials and construction products will continue to be supported by several advantageous market dynamics, including ongoing growth in jobs, high consumer confidence and low interest rates.”

As previously announced, on November 25, 2019, Eagle entered into a definitive agreement with Kosmos Cement Company (a joint venture between CEMEX S.A.B. de C.V. and Buzzi Unicem S.p.A), to purchase the Kosmos cement plant in Louisville, Kentucky, as well as seven distribution terminals and substantial raw-material reserves. The plant has the capacity to produce nearly 1.7 million tons of cement annually. Eagle expects that the acquisition will increase its U.S. annual cement capacity by approximately 25% to more than 7.5 million tons. The purchase price is $665 million, subject to customary post-closing adjustments. Eagle expects the transaction to close in its fiscal 2020 fourth quarter following the receipt of required regulatory approvals and other typical closing conditions. Eagle intends to finance the acquisition through a combination of cash on hand and borrowings under a new syndicated term loan facility.

Segment Results

Heavy Materials: Cement, Concrete and Aggregates

Revenue in the Heavy Materials sector, which includes Cement, Concrete and Aggregates, and Joint Venture and intersegment Cement revenue, was $229.8 million, an 18% increase. Heavy Materials operating earnings increased 19% to $57.5 million primarily because of higher sales volume and net sales prices.

Cement revenue, including Joint Venture and intersegment revenue, was up 12% to $183.0 million, reflecting improved net sales prices and sales volume. The average net sales price for the quarter increased 2% to $110.09 per ton. Cement sales volume for the quarter was a record 1.4 million tons, up 7% versus the prior year.

Operating earnings from Cement were $54.2 million, 15% above the same quarter a year ago. The earnings improvement was primarily due to higher sales volume and net sales prices.

Concrete and Aggregates revenue for the third quarter was $46.8 million, an increase of 53%. Third quarter operating earnings were $3.3 million, a 222% increase, reflecting record Concrete sales volume, improved Concrete and Aggregates sales prices and the financial results of a small concrete and aggregates business that Eagle acquired in August 2019.

Light Materials: Gypsum Wallboard and Paperboard

Revenue in the Light Materials sector, which includes Gypsum Wallboard and Paperboard, declined 4% from the prior year, as improved sales volume was offset by lower pricing. Gypsum Wallboard sales volume was 669 million square feet (MMSF), up approximately 2%, while the average Gypsum Wallboard net sales price declined 8% to $146.46 per MSF.

Paperboard sales volume for the quarter was up 8%. The average Paperboard net sales price this quarter was $460.65 per ton, down 11%, primarily as a result of the pricing provisions in our long-term sales agreements.

Operating earnings were $47.5 million in the sector, a decline of 7%, due primarily to lower net sales prices and increased costs associated with the plant expansion partially offset by improved sales volume and lower operating costs. Operating costs during the quarter declined primarily due to lower energy and recycled fiber costs. In connection with the planned expansion of our papermill, we had an extended outage during the quarter to install new operating equipment. This outage reduced production and led to increased costs of approximately $1.5 million during the quarter.

Oil and Gas Proppants

Revenue in the Oil and Gas Proppants segment was $7.3 million, down 48%, primarily reflecting a 45% decrease in Frac Sand sales volume. The operating loss of $6.8 million during the quarter included $3.4 million of depreciation, depletion and amortization.

During the second half of calendar year 2019, our Frac Sand business has been increasingly affected by a combination of reduced drilling and completion activity and increased use of local in-basin sand by oil field service companies and other customers instead of northern white frac sand. These trends are expected to continue in the near term. Consequently, in connection with the preparation of our financial statements for the third quarter of fiscal 2020, we recorded impairments of $217 million for long-lived assets and $7 million of other assets.

Planned Separation of Heavy Materials and Light Materials Businesses

As previously announced on May 30, 2019, the Company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. We anticipate that the separation will be completed in the summer of calendar 2020. The Company also continues to pursue alternatives for its Oil and Gas Proppants business.

Details of Financial Results

We conduct one of our cement plant operations through a 50/50 joint venture, Texas Lehigh Cement Company LP (the Joint Venture). We use the equity method of accounting for our 50% interest in the Joint Venture. For segment reporting purposes only, we proportionately consolidate our 50% share of the Joint Venture’s revenue and operating earnings, which is consistent with the way management organizes the segments within Eagle for making operating decisions and assessing performance.

In addition, for segment reporting purposes, we report intersegment revenue as a part of a segment’s total revenue. Intersegment sales are eliminated on the income statement. Refer to Attachment 3 for a reconciliation of these amounts.

About Eagle Materials Inc.

Eagle Materials Inc. manufactures and distributes Portland Cement, Gypsum Wallboard and Recycled Gypsum Paperboard, and Concrete, Sand and Aggregates from more than 75 facilities across the US. Eagle’s corporate headquarters is in Dallas, Texas.

EXP’s senior management will conduct a conference call to discuss the financial results, forward looking information and other matters at 8:30 a.m. Eastern Time (7:30 a.m. Central Time) on Tuesday, February 4, 2020. The conference call will be webcast simultaneously on the EXP website, eaglematerials.com. A replay of the webcast and the presentation will be archived on the website for one year.

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; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; 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, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; fluctuations in or changes in the nature of activity in the oil and gas industry, including fluctuations in the level of fracturing activities and the demand for frac sand and changes in processes or substitutions in materials used in well fracturing; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; 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; a cyber-attack or data security breach; announced increases in capacity in the gypsum wallboard, cement and frac sand industries; changes in the demand for residential housing construction or commercial construction; risks related to pursuit of acquisitions, joint ventures and other transactions; 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 revenue 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. With respect to our proposed acquisition of certain assets from Kosmos Cement Company as described in this press release, factors, risks and uncertainties that may cause actual events and developments to vary materially from those anticipated in such forward-looking statements include, but are not limited to, the inability to complete the acquisition within the expected time frame, or at all, failure to realize expected synergies from or other benefits of the transaction, possible negative effects resulting from consummation of the transaction, significant transaction or ownership transition costs, unknown liabilities or other adverse developments affecting the assets to be acquired and the target business, including the effect on the target business of the same or similar factors discussed above to which our Heavy Materials business is subject. Finally, the proposed separation of our Heavy Materials and Light Materials businesses into two independent, publicly traded corporations is subject to various risks and uncertainties, and may not be completed on the terms or timeline currently contemplated, or at all. These and other factors are described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and subsequent quarterly and annual reports upon filing. These reports are filed with the Securities and Exchange Commission. 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.

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