Dave Powers - President and Chief Executive Officer Craig Kesler - Chief Financial Officer Bob Stewart - Executive Vice President, Strategy, Corporate Development and Communications.

Trey Grooms - Stephens Inc. Adam Thalhimer - BB&T Capital Markets Scott Schrier - Citi Todd Vencil - Sterne Brent Thielman - D.A. Davidson John Baugh - Stifel Jerry Revich - Goldman Sachs Jim Barrett - C.L. King & Associates.

Good day, everyone and welcome to Eagle Materials Fiscal Year 2016 Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to Eagle’s President and CEO, Mr. Dave Powers. Mr. Powers, please go ahead, sir..

Thank you. Good morning to all. Welcome to Eagle Materials conference call for the fourth quarter and our fiscal year 2016. We are glad that you could be with us today. Joining me today are Craig Kesler, our Chief Financial Officer and Bob Stewart, Executive Vice President of Strategy, Corporate Development and Communications.

There will be a slide presentation in connection with this call. To access it, please go to eaglematerials.com and click on the link for the webcast. While you are accessing the 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 release.

I would like to begin with some perspective on our cement, proppants and our gypsum wallboard businesses and then Craig will walk us through the financial results. First, Eagle cement business has performed very well during the fourth quarter.

Although we benefited from relatively mild winter weather, make no mistake that strong underlying demand fundamentals are well evident and these fundamentals are the primary drivers of growth in most of our markets. Accordingly, we implemented cement price increases in all of our markets this spring.

As a testament to the strength of our cement markets, it’s worth noting that although our oil well cement sales are down roughly 80% from where they were 2 years ago, we have been able to fully reallocate those volumes to our construction rig customers.

Our oil and gas proppants business continues to operate at near cash breakeven levels, consistent with our strategic intentions during this phase of the energy cycle. We remain poised for greater contribution with recovery in drilling activity. And finally, gypsum wallboard demand continues to show strength.

In fact, when we look at the three regions of the country where we most actively participate, the Mountain, the West South Central and the South Atlantic, we see that industry shipments were up 33% during the quarter.

When we then adjust for what likely constituted surge buying by our customers, we estimate that our core markets grew between 12% and 13% during the quarter. Candidly, this volume exceeded the pace of our internal expectations.

American Gypsum did implement a wallboard price increase this spring and we look forward to sharing the results of that increase with you during next quarter’s conference call. Now, let me turn it over to Craig to review our financial results..

Thank you, Dave. Eagle’s fiscal year 2016 revenues were over $1.1 billion, an all-time record and an increase of 7% from the prior year reflecting improved sales volumes and prices across most of our businesses and the successful integration of our new slag cement facility near Chicago. Our fourth quarter revenues were also a record $252.1 million.

Eagle’s fourth quarter earnings before interest and taxes improved 26% to $56.1 million as our cement and paperboard businesses reported record fourth quarter results.

As we mentioned in the press release, the prior year’s fourth quarter results reflect the benefit of $16.8 million after-tax or $0.33 per diluted share associated with selling our litigation against the IRS.

A 6% increase in our net cement sales prices and improved concrete and IRS pricing were the primary drivers of the increase in Eagle’s annual comparative of cement, concrete and aggregates revenues.

Operating earnings from our cement, concrete and aggregates businesses improved 19% to a record $147.7 million reflecting improved pricing, good cost control and the acquisition of the slag cement facility midway through the year.

Our fourth quarter wallboard sales volumes and by extension, our paperboard sales volumes benefited from customer surge buying ahead of American Gypsum’s spring wallboard price increase. The surge buying activity and strong underlying demand helped drive a 5% increase in our annual gypsum wallboard and paperboard revenues.

Operating earnings in our wallboard and paperboard businesses improved 8% to $191.5 million for the year. Much like the cement business, the change in our quarterly average wallboard price primarily reflects regional variances. And finally, Republic Paperboard performed exceptionally well. It’s a quarterly and annual record for operating earnings.

Eagle’s oil and gas proppants financial results reflect the difficult business conditions in the oil and gas sector. The annual operating loss includes a $37.8 million charge we took in the second quarter primarily related to intangible assets and depreciation and amortization of $27.2 million.

The near-term demand and pricing outlook for proppants remains limited and we continue to right-size our business, while focusing on running the business at close to cash flow breakeven levels until conditions improve. Operating cash flow during fiscal 2016 increased to $265.8 million, up 14% with capital spending of approximately $89.6 million.

Excess cash flow was used to repurchase shares, acquire the slag cement branding facility, pay dividends and reduce outstanding borrowings. As we look at the fourth quarter, fourth quarter capital spending of $14 million was down significantly from the prior year’s fourth quarter reflecting more of a sustaining capital environment.

Also during the fourth quarter, over $50 million of cash flow was returned to shareholders in the form of share buybacks and dividends. This brings total share repurchases of over 2.1 million shares since the buyback authorization was increased in August of 2015.

This last slide reflects the cash flow generation results for a highly competitive low cost position. Our net debt to cap ratio was 33% at March 31, 2016. Thank you for attending today’s call. We will now move to the question-and-answer session.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Trey Grooms of Stephens Inc. Your line is open..

Hey, good morning. First question is on the cement pricing being flat in the quarter.

I know you have been trending kind of up 7% or so, 7% or 8% and you mentioned geographic differences, Craig, but anymore color you can give us on that? And then also if you could give us a sense for what pricing cement look like and pricing there on a like-for-like basis there in new markets?.

Sure. Thanks, Trey. As we have mentioned over the past several quarters, we have seen a significant change in the demand for oil well cements here in the South and West Texas, which is obviously having an impact on the average quarterly cement price.

I think as Dave mentioned in his prepared remarks that has continued to evolve here in early calendar ‘16. So, that is impacting.

If you look at the joint venture results, you can see their price was down and it’s primarily a product mix shift from the oil well cement into the construction grade cement, but still maximizing profitability out of that Texas cement facility.

If you then look at the wholly owned business, you can see in the earnings release, the prices did appreciate there fairly well year-over-year, which reflects some pricing a year ago.

And then as we mentioned last call, we did – we put forth and implemented price increases, most of them here in early April in all of our cement markets outside – and those have done very well and cement supplies continued to be tight across the country, but very happy with where pricing is and where it’s headed..

Great. And then kind of sticking to that, the JV volume being down a little bit in the quarter, I know you mentioned oil well, any other drivers there and then if you can kind of talk about how you guys are balancing produced cement versus imported cement in that market.

And then kind of your expectations around that as we look through this year?.

That’s a good question, Trey. Texas remains a very robust construction market. When you look at the markets of North Texas and Central Texas, those – cement demand in those markets continues to exceed supply.

So the State of Texas continues to be oversold and so to your point as we have said, we have had to shift away a lot of oil well cement but we have been able to place that into construction grade market and that’s going very, very smoothly for us. But it’s been a big change.

But the demand in the state continued to be very robust and it’s across all the different construction sectors from residential to non-residential and public infrastructure spending continues to be very robust across the state.

You got to remember you have a North Texas MSA, Central Texas and Houston that individually are extremely large markets and those markets continue to grow. And so purchased product will continue to play a role in our marketing efforts as its necessary..

Okay. And last one for me, on wallboard volume, very strong as expected of course with the pre-buying and everything and I appreciate you kind of trying to us that dissect it down to kind of what the end markets were or the core markets were versus any pre-buy, that was helpful.

And you mentioned I think Dave, in your prepared remarks, mentioned wallboard continues to show strength, are you referring to kind of what we have seen after the quarter and I guess what I am getting at is really trying to – if you could give us any color on what you are seeing for wallboard demand post this big pre-buy period?.

Our businesses are still strong. Our volume continues to be strong. When I look at March and April of this year and compare it to March and April of last year, we are up double digits. So customers are reporting that they are busy and originally at the start of the year, we were looking at 5% market growth.

We are thinking a little bit higher than that going forward..

Great. Thanks for taking my questions. Good luck guys..

Thanks Trey..

Our next question comes from the line of Adam Thalhimer of BB&T Capital Markets. Your line is open..

Hi, good morning guys. Congrats on a strong Q4..

Thank you..

Hey Craig, this $7 to $12 cement price increases, can you help us think about how that might flow through in fiscal ’17, just what you normally see with those?.

Sure. So most of those increases were put forth kind of like I said April 1 and so they will come into effect here pretty quick as we get into the spring construction season in terms of the net realization, we will certainly give you that update at the June quarter call. But where supplies are tight, we feel very good about those price increases..

Okay.

And then where do you think on the JV cement side, where is the bottom for pricing there?.

One of the things you got to remember is as we went through calendar ‘15, not only did we have to see the transition from oil well cement to construction grade cement, but we were also dealing with an extremely wet weather year for the entire State of Texas and that certainly impacted sales volumes throughout the year.

And so we certainly don’t know what the weather pattern holds, but we should not have another 100-year flood like we had the entire year last year. So again, you look at the State of Texas being oversold as it has been for the last several years and continues to be – supplies are very tight in the state and construction activity remains robust..

Okay.

And then on frac sand and some reading you read it sounds like you kind of stayed at minus $9 million of Op income per quarter until the demand improves?.

As we said in the last few quarters and I think Dave said again today that the goal there is to keep that as close to cash breakeven levels as we can.

This past quarter, we took some – with the customer base struggling a little bit, we continue to look at those receivables and adjust for those, but yes it’s going to remain on an operating income level kind of like this and keeping it at a cash flow breakeven level..

Okay. Thanks for the color..

And our next question comes from the line of Scott Schrier of Citi. Your line is open..

Hi, good morning. And thanks for taking my call. First, I want to say nice progress in the quarter.

I wanted to say, just considering where your stock price is now relative to the last call, has your view on buybacks and capital allocation changed at all?.

No. Just as we continue with the share repurchase program that we started, began to implement last August, we continue to implement that program, we continue to see value in shares..

Got it. And then sooner or later the aggregates business is doing well with strong volumes and pricing, was there anything that you can note that helped to drive that.

And also on that note on the capital allocation, is that an area where you would consider deploying more capital?.

Look, we are very fortunate that we see with the balance sheet that is structured very well, low leverage, enabling us to put capital to work where appropriate. Certainly, the focus has always been and will continue to be the return on those investments.

And if we can get that into the heavy side whether that’s the aggregates or the cement side, we are going to remain very focused on creating shareholder value through those – getting those returns, that’s something that’s always been a top priority. And – but we are not going to overpay for that privilege.

But in terms of the aggregates, the concrete and aggregates performance, I think it just reflects what we have said here today that we continue to see these businesses improving. And we have got a couple of concrete aggregate business across the country and then their markets are just continuing to improve..

Great. Thanks. I appreciate you taking my questions and good luck this quarter..

Thanks..

Our next question comes from the line of Todd Vencil of Sterne. Your line is open..

Hi, good morning guys..

Good morning..

Thinking about the wallboard price in the quarter is down sequentially a little over $5 in the December quarter with 36% volume growth, I am guessing that wasn’t lose all those competitive pressure around volumes, can you write that all up to regional mix or product mix or how do we think about that?.

I would write you are right, most of it off to regional mix. We had a little bit of product mix. So a little more happens than 5/8 caused us a little on the mill net side, but it helped us a whole heck of a lot on the cost side. As far as regional mix, our lowest price in the country is the Southeast.

Our customers there have a great capacity to warehouse products and most of the surge buying prior to price increase happened to be in the Southeast. The majority of it had to do with market mix and second, product mix..

Got it.

And just to be clear, in the Southeast where I think as you are saying, your pricing is structurally lower, I mean yet, is your percentage margin there any different or is your margin any different on the quarter end versus the 5/8?.

The margin is no different at that plant than other plants just because that’s my lowest cost plant. The margin in terms of percent is about the same happens to 5/8, gross profit per machine hour is about the same..

Perfect. Thanks for that.

And then turning to cement for me, you mentioned Craig, the demands will exceed supply in Texas, can you give us a sense of magnitude of that, I know you guys in the past have certainly talked about x million tons of demand, x million tons of capacity, can you update us on that?.

Yes. I think demand is still in that 16.5 million to 17 million ton range and capacity right around 13 million tons..

So, it hasn’t really changed despite the drop in oil well cement demand?.

That’s a great point, Todd, that we have seen a substantial as we have said a drop in oil well cement demand and that has been absorbed and then even more in the construction grade cement. It’s more than made up for that..

Got it.

And can you – on that point, can you give us any sense of where the gap stands today between the differential in pricing and profitability between oil well and construction cement there in Texas?.

Yes, for – as we have said the pricing differential is a little bit lower on the construction grade cement, which is why you are seeing this product mix shift impacting the mill met but in terms of overall margin, there is not a lot of margin differential in the products, because it’s a little lower cost – production cost when you produce construction grade cement.

So, we are very happy and you see that in our earnings, profit per ton remains very robust and so we are happy to be selling either product..

Good, good.

And then final question for me, on the concrete, one surprise is the price on ready mix was up just about 1 point year-over-year, I think? Can you talk about what’s going on with concrete pricing and if there is any mixture of the factors in there?.

Concrete is a pretty small part of our entire whole company. I would suggest to you it’s more regional mix than anything. We just have the three businesses in Kansas City, Austin and kind of north of Sacramento. So, I think those markets individually are seeing good prices and just a regional mix there..

Got it. Thanks so much..

And our next question comes from the line of Brent Thielman of D.A. Davidson. Your line is open..

Yes, good morning. Thanks.

Back on the wallboard average price, absent any impact of the price increase in Q1, should we still see a rebound in that ASP as kind of the regional drivers in volumes even out?.

Yes, Brent, I think we are trying to – we will talk about pricing in the next – in the June quarter rather than trying to pro forma out what pricing might look like excluding certain things. We will give you a pretty good idea next quarter of the net realization of the price increase..

Okay, fair enough.

And then Craig, could you give us a sense of the timing and magnitude for cement maintenance CapEx for this fiscal year and then also what you might be thinking for total CapEx for the company for ‘17?.

Sure. No, the cement maintenance program will run very consistent with where we were a year ago, so typically here in this June quarter that we have begun that’s when we take down the majority of the kilns for their annual outage, their planned annual outages.

And most of those, if they haven’t been complete, they are pretty close to already being complete. So, that will be consistent.

And as we always talked about for capital needs for the company, sustaining capital in the $25 million range on an annual basis and then we do have some cost reduction project opportunities, some equipment replacement opportunities that need to be taken care of.

So, I would suggest to you that total capital spending somewhere in the $50 million range, which includes a sustaining capital plus some other opportunities to further reduce cost and some other just necessary equipment replacements..

And the bulk of that spending above your sustaining CapEx, is that spread across all the businesses or in some particular areas?.

Yes, I mean, it will be across the two major business lines, the cement, the wallboard. There is not a lot of spending in the paperboard business for the concrete and aggregates right now. And then notwithstanding obviously as we said, the frac sand business is down to a very small amount of additional capital needs, very, very small..

Got it. Okay, thank you..

Thank you. Our next question comes from the line of John Baugh of Stifel. Your line is open..

Thank you for taking my questions this morning. Could you just help us – you mentioned you are down 80% in wellhead cement over the 2-year period.

But as we sort of model out the next few quarters, I don’t know how we step down in the prior year and if there is going to be even anymore step down in your view in total from the 80% drop we have already had?.

Yes. John, at some point, you get to a basic level, not just different than frankly what we saw few years ago in housing starts. You get down to a necessity level for that, but we are down pretty low. Look, we – kind of the first half of calendar ‘15, I would say demand as we spoke was down 50%.

We have seen another leg down, which kind of gets you down to that, down 80% in total. So, it’s happened pretty swift and you will see what happens in drilling activity from here, but it’s – we are at pretty low levels at this point..

So, we continue to step down at the December and March quarters until we still have comparative there in switching out to construction moves to how that comparative for most of the remaining or the new fiscal year?.

Most of that has been done right on the oil well cement. That’s happened. And again, you have got the weather comparison from the prior year. So, we will see how weather goes through the rest of the year, but the oil well shift has happened..

Okay. And then on frac sand, I hear your comments that demand is very low and there is not much visibility there.

Is that a conservative state when we know wells pop back up a little bit or no you just don’t see any lift in demand for fiscal ‘17 at this point?.

Well, we do know as the rig counts are down, but oil service companies continue to struggle financially. The E&Ps continue to reduce capital. And there is little pressure on price. We think we are approaching the bottom. We also think the second half of our fiscal year will be a little bit better than the first half of our fiscal year..

Alright. That’s helpful. And then I think if I read right in the press release, the share repurchase was a comment since year end calendar. So, I guess it incorporates May or April and May to-date, is that correct and could you parse out how much happened in the March quarter versus since the March quarter? Thank you..

Yes. So, that was really through, mostly through the end of the March quarter, the million shares that we commented there. There are some shares that settled post the quarter, just the way the shares are settled through the financial institutions.

Once you enter a blackout period or an earnings period, there is some limitations on the stock repurchases. So, the vast majority of that million shares was in the March quarter and the first few days of April..

Terrific. Thanks for the color and good luck..

Thank you. And our next question comes from Jerry Revich of Goldman Sachs. Your line is open..

Hi, good morning..

Good morning..

I am wondering if you could talk about for the oil and gas business in the Eagle Ford as we think about the eventual recovery, what are you folks doing to build the customer base and get them comfortable with the delivery mechanism, on time supply, should we look forward to you folks signing any contract? So, can you just through it, because your strategy in the past was based on selling on a spot basis and I am wondering how that’s evolved as you think about the next recovery?.

As we speak, we are working with our customers to renegotiate supply agreements and we are looking at a little bit different customer base than we originally sold. We are also working with customers to reduce costs delivered to their well. So, we are actively working that at this point, yes..

Okay.

And then in terms of your ability to gain market share in the Eagle Ford in the next cycle, can you talk about how should be thinking about your market share in the next cycle? Obviously, you can get the benefit of participating in that market in a big way in the last cycle and I am wondering if you could just step through the mechanism to gain share when the recount eventually does recover?.

Our focus now is to breakeven in the short-term and position ourselves to make some good money in the long-term. And if we do those things right, we will pickup a little bit of share..

Okay. And lastly, if I remember right, I think you had some railcars that were on leases that might provide a tailwind to your earnings as the leases were loft.

Can you just remind me, Craig, what the magnitude of the improvement could be and what’s the timing?.

Yes. Jerry, in the frac sand business, there is a number of railcars that are under utilized as you would expect and we are going through the process currently of trying to improve those lease rates as best we can or utilize those cars in other parts of our business. So that is well underway..

And is there a timing when meaningful part of the leases will roll-off that should we think about?.

That’s part of the negotiation process that we are in right now to make sure that those lease times, those cars as necessary or used and fixed amounts not necessarily renegotiate the timing of those leases. And the underlying costs of those leases..

Okay. Thank you..

[Operator Instructions] Our next question comes from the line of Jim Barrett of C.L. King & Associates. Your line is open..

Good morning everyone..

Good morning..

Dave, I have a couple of questions for you.

In your commentary on the market for wallboard ex the surge growth of 12% to 13%, back of the envelope do we attribute half of that to the warm weather and you think the underlying markets growing half that, is that sort of a rough guess as to how that business is or that industry is performing?.

I wouldn’t put much – attribute much to the weather at all. I think a lot of it is the market growth. We are very fortunate the markets that we play in grew faster than a lot of the other markets. And we took full advantage of that. It’s very little has to do with the weather to be honest with you..

So it sounds like although we are still early in the year that growth could be up more than a little bit, if those trends continue it sounds like?.

That’s my read, yes..

Okay.

And then on your South Carolina plant, some of your competitors mentioned modest issues accessing synthetic gypsum, what is your near-term and longer term outlook for synthetic gypsum supply for that plant?.

First of all, four of our five gypsum plants are unnatural gypsum, so we feel very good and we have decades of supply. In South Carolina, our plant does run on synthetic gypsum. We have the ability to run our natural gypsum. And more importantly, we are teamed up with a terrific partner in Santee Cooper.

We built our plant on their property and we have a 52-year lease on that property and a 52-year agreement for supply and we fully expect Santee Cooper to continue to live up to their agreement.

But I will tell you that there are trends for fewer coal fired power plants ahead, those that have been invested in scrubbers have a greater likelihood to keep running. And it’s really a situation that’s plant and market specific. This also applies to fly ash as well as synthetic gypsum..

Yes.

And then finally the Skyway slag acquisition, assuming you are still happy with that deal, is there a list of companies like that across the country, which might be available for sale and if they were obviously at the right prices, strategically is that an area that you would look to expand it?.

Jim, obviously we wouldn’t talk about any specific opportunities, but needless to say, we continue to look for growth in the heavy side and adjacent businesses and slag and fly ash would certainly meet that criteria and it will come down to valuation, we are not going to overpay for the privilege in generating higher than industry average returns.

That’s something that we have always been focused on..

Well, thank you both..

And I am showing no further questions in the queue at this time. I would like to turn the call back to Mr. Powers for closing remarks..

We would like to thank all of you for joining us today. And we look forward to sharing next quarter’s results with you at the end of next quarter. Have a great day..

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