Eagle Materials Inc. reported financial results for the third quarter of fiscal 2020 ended Dec. 31, 2019. The company is reporting third-quarter revenue of $350.2 million, up 5%.
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.”
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.”
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.
As previously announced, on Nov. 25, 2019, Eagle entered into a definitive agreement with Kosmos Cement Co. (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, Ky., 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.
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.
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,” the company noted. “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.”
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.