Steven R. Rowley - Chief Executive Officer, President, Director and Member of Executive Committee D.

Craig Kesler - Chief Financial Officer and Executive Vice President of Finance & Administration

Kathryn I. Thompson - Thompson Research Group, LLC Garik S.

Shmois - Longbow Research LLC Trey Grooms - Stephens Inc., Research Division Jerry Revich - Goldman Sachs Group Inc., Research Division L. Todd Vencil - Sterne Agee & Leach Inc., Research Division John A.

Baugh - Stifel, Nicolaus & Co., Inc., Research Division Brent Thielman - D.A. Davidson & Co., Research Division James Barrett - CL King & Associates, Inc., Research Division

Thank you, and welcome to Eagle Materials conference call for the third quarter of fiscal year 2014. Joining me today are Craig Kesler, our Chief Financial Officer; and Bob Stewart, Executive Vice President, Strategy, Corporate Development & Communications.

There will be a slide presentation made in connection with this call. To access it, please go to www.eaglematerials.com and click on the link to the webcast.

While you're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this 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. We are very pleased with the progress that we've made during the past year integrating our newly acquired cement, concrete and aggregates operations in Kansas City and Tulsa.

We're also extremely pleased with our wallboard and paperboard businesses as they both continue to operate at very high levels of operational efficiency, and our sales opportunities continue to increase as the demand for wallboard increases during the construction recovery. As a result of all of this is a record high third quarter revenues, which increased 39%, and a 70% increase in earnings per share, our third-highest third quarter EPS in our history.

Record cement sales volumes, increased concrete and aggregate sales volumes and improved pricing were the primary drivers of the 50% increase in Eagle's quarterly comparative of cement, concrete and aggregate revenues. Sales volume improvement occurred in all of our cement markets.

We continue to see strong demand from the energy sector for oil well cement, which we expect will continue. Cement prices increased year-over-year in each market, and our average net cement price increased 5% for the quarter, reflecting price increases successfully implemented early in 2013.

Cement demand remains strong in this winter. To put this into perspective, 2 winters ago, the weather was very mild and cement shipments in January, including the acquired assets, were 235,000 tons.

This past month, our cement shipments were 270,000 tons, a 15% improvement in spite of very difficult winter conditions. We have announced cement price increases for 2014 in all of our markets.

Our $8 per ton price increase is holding in the early implementation markets. In the majority of the markets, our price increases are scheduled to be implemented on April 1.

Increased wallboard average net sales prices and increased sales volumes drove a 24% increase in our quarterly comparative of wallboard and paperboard revenues. Operating earnings in our wallboard and paperboard business improved 51% to $37.4 million for the third quarter.

On January 1, wallboard price increase -- our January 1 wallboard price increase is holding, and January wallboard demand in our marketplaces is up slightly year-over-year even with the large amount of December prebuying and stockpiling of wallboard. Now let me turn this over to Craig for more details of the financials.

Thank you, Steve. Operating cash flow during the 9 months increased to $144 million, up 35% from the prior year.

Capital spending of approximately $43.2 million was used primarily towards the buildout of our frac sand mine in Northern Illinois and maintenance capital. Excess cash flow was used to pay dividends and reduce outstanding borrowings.

During the third quarter alone, we paid down $63 million on our bank credit facility; quite an accomplishment. Interest expense increased to $4.5 million during the third quarter, reflecting higher borrowing levels resulting from the acquisition of assets in Missouri and Oklahoma last year.

Our effective tax rate for the quarter was 35%. As this last slide reflects, Eagles is generating meaningful cash flow from operations as we benefit from improvement in market conditions across a larger footprint of operations while improving on our low-cost competitive position.

We have primarily used this cash flow to reduce debt, as I mentioned, and improve our financial flexibility. Our net debt-to-cap ratio was 32% at December 31, 2013.

Thank you for attending today's call. Kim, we will now move to question-and-answer session.

The first question is going to be on frac sand. Could you give an update on progress of the buildout, quantify the estimated cost in the quarter related to start-up and any color that you can give on the permit -- the water runoff permit, that is.

Sure. We're very happy with the progress that we've made, starting our plant up down in Corpus Christi.

We spent a lot of time fine-tuning the plant to make sure we produce a high-quality product and making sure sales -- is very lumpy, that the system will operate accordingly and be able to supply cement needed in a very fast fashion. So we've done that and kind of proved the system out and continue to test the marketplace and are very happy with the way the system is performing.

As far as the permit is concerned, it's progressing just normally through the normal approval processes. We've been very responsive to support the IPA in responding to the public comments that they received last quarter.

And while we're optimistic that we're nearing the end of a lengthy process, we cannot comment on the specifics of timing for the permit, but we can say that due process has been very thorough.

And any quantification of costs in the quarter related to some of the start-up?

Yes, the majority of that, as you're ramping up, it's primarily just fixed costs, increased depreciation and manpower costs as we're ramping up and getting ready in preparation of commercially selling frac sand once we get our mine up and running.

Okay. On the cement side of your business...

So Kathryn, I guess the only thing I'd add to that would be in the press release we quantified it for you that $2.1 million incorporates Steve's comments.

Okay, great. On the cement side of your business, could you -- you've done a nice job in the past of giving capacity utilization of each of your plants, and some appear to be getting -- some are at full capacity utilization, but some are getting close.

Would you be able to go through each of your major plants and where you are? Because we want to just get a general sense of where we are in terms of getting that much closer to full utilization for your plants.

So we continue -- of course, this is the winter time and things slow down up north in the winter, especially with this kind of weather. When -- in between storms, the sales are very strong, but once the storm hits, things slow down a little bit.

But the 2 plants that we've said for the last year or 2, remain sold out; that's in Texas and in Mountain region. And -- but we do -- can steadily continue to increase sales volume in the Midwest, both in the marketplace near Chicago, as well as out of the new plants that we have in Tulsa and Oklahoma.

Whereas -- in the far west, things have improved, but we are still not running anywhere near full capacity at it in the western part of the country.

And how much would you say you're at -- like 75% capacity utilization?

Roughly.

Once again, on cement, how does the announced merger of Martin and TXI impact your business, particularly on the pricing dynamics?

We're -- it's a little too early to speculate on that, but we're happy to see that both parties were able to come to a nice agreement for themselves.

And finally, you mentioned some good acceptance of the January $8 increase, how has the early discussions been for the spring increase?

Yes, this real strong demand that we're having even in the bad weather really makes us feel very positive about our spring price increases, as well as the fact that in the early markets, we did not have any problem implementing the price increase.

Just first off on the comment around January cement demand being up 15%, just wanted you to provide a little bit more context around what markets you're seeing this type of growth and what end markets you're seeing this type of recovery come into?

So the nice thing is it's really almost universal. So again, we have 2 plants that are sold out; that's a little different.

But one plant is in the North and so, demand has been very strong for a while there. But it's really been all of our markets, and so that actually makes us feel pretty good that the demand for construction is starting to become a little bit more broad-based as opposed to just isolated to certain marketplaces.

Okay. And then just one more question on cement.

Last year, I believe in the March quarter, you had a number of maintenance projects and some outside costs, maybe about $7 million of costs roughly that were onetime in nature a year ago. Just wondering if you can update us on what kind of maintenance expense we should be expecting for the current quarter.

Yes, we may have a few outages that start. I think we have some that almost may start in this quarter and actually trail into April.

So it's a little hard to quantify when you're kind of -- have part of an outage at the end of March that will go into April. So we will have some outages, but they will not be near the extent that they were a year ago.

Okay. And then just one question on wallboard.

Was there any impacts from rising natural gas costs on margins in the December quarter? And what is your expectation with respect to raw material inflation when looking out for that business over the next 9 to 12 months?

The wallboard had very little impact in January with gas. We did have a little bit of impact in pricing and in cost.

It was $1 or $2, but that's the most, and I'm not even sure if that was -- I think that was mainly repair parts that we had some issues. So we just spent a little bit more money in maintenance, and that would be it.

But we're talking roughly $2 a thousand increase in cost for the quarter.

Just real quick on one of your comments earlier, Steve, you mentioned wallboard volume, up slightly in January after the prebuy. So do you expect this trend to improve as we progress further away from that prebuy period and maybe into a more stable weather environment as we get into March -- February and March?

What's your take on that?

We certainly do. So like I say, volumes are a little better than they were last year, but there was a little -- a little prebuy [ph] , I think, as much a year ago.

So we kind of anticipated there might be a little slower start this year, but that was not the case. About what really makes us feel good is our customers are very positive about their calendar year 2014 opportunity.

So the demand's out there, we feel very, very good about wallboard demand next year.

Good. Okay, great.

And then, okay, so you guys paid down about $63 million of debt in the quarter, obviously impressive. You guys had said you were going to be delevering after Lafarge asset deal, which, obviously, you guys are living up to that.

But now, with your debt-to-EBITDA at pretty low levels, how do we think about use of cash flow as we look going forward? Because, I mean, you guys are going to be generating a pretty impressive and sizable amount of free cash over the next few years.

We obviously look for opportunities and, of course, we're going to continue to build out this frac sand business for the next 3 to 4 years that we've been talking about. It's not going to consume the cash flow that we're generating, but at least there'll still be some cash that will be continued to be spent in those regards.

And then just like anything, we remain opportunistic to ways to grow the business that both make sense for Eagle, things that we understand and know and that provide a return for the investors. And we're just not going to go ahead and acquire something that doesn't make sense, or if it doesn't have a return.

We think in those instances, we have other ways to return money back to the shareholders.

Okay. And then -- I'm sorry, I dropped off the call for just a second, so if I missed this, I apologize.

But you've quantified the start-up costs in the quarter and so forth. But just to be clear, when that frac sand start-up costs, Craig, should we be continuing to expect a similar level of start-up-related costs going forward until you guys are actually shipping out of your mine?

Is that the way to think about it?

Yes. So here, I think as Steve mentioned, in the process of working through what we need to up in Illinois and hopefully having the mine open at some point in the near future.

But for at least the foreseeable future, those fixed costs will remain, while we kind of slowly work into the business.

Okay. And just housekeeping, Craig, 35% tax rate in the quarter, higher than what we've seen, higher than what we've -- what I was expecting.

Can you give us an idea, one, what was behind that? And then secondly, what we should be thinking about when we're running our models going forward?

Sure. The tax rate for the quarter, as you mentioned, 35%.

We've been running at about 32% for the last few quarters. That rate increase really impacted by 2 things.

First, we put pretty decent amount of equipment in service during the quarter, primarily frac sand equipment. And so that's actually impacting or lowering our manufacturing deduction, so that will bring kind of a go-forward rate of about 33%.

But then we also, during this quarter, file our tax return. And when you do that, you have some basic true-ups that you go through to look at actual deductions versus what we had estimated a year ago.

So that impacted the rate, kind of would be the difference between the 33% and 35%. So all of that being said, I think for your model, I'd use in that 33% range.

Steven, in past, as we've seen your cement business, you've prebuilt demand by selling third-party cement at -- for the levels of the new capacity that you're bringing on line. Can you just update us how much third-party frac sand have you shipped to-date and what have your impressions been of the Eagle Ford market relative to initial expectations?

So we really haven't shipped that much, as I've mentioned already. At this point, we're really just kind of sticking our toe in the water, testing the marketplace, learning the marketplace.

We don't want to go into the market and not understand the marketplace. And make sure that our system works well, and we can handle lumpy sales.

So on occasion, we've sold, for a week or so, a lot of frac sand, just to make sure the system works. That's really been our plan all along to make sure with the third-party sales that the system works and we get a feel for the marketplace.

So we're very happy with the plant, and we really understand the marketplace and feel very good about our business plan going forward.

And in terms of the strength that you're seeing across your cement business, can you talk about what's the mix of public versus private projects? Are you seeing a pickup in public yet?

Really, I could say that's probably been lower in most marketplaces. So it's really just been other business.

And it's really hard, very little work is done direct anymore. It's really done through local ready-mix businesses, so you really have to then understand what each customer is doing.

So it's really hard to kind of put that together. Some of it's local, some of it's state, some of it's state federally funded.

Bidding this up a little bit, but in some states -- but in other states, it's still a little slow going.

And in your wallboard business, you've really led the market in terms of moving away from job quotes in this cycle. And last year you provided your customers with pricing visibility, I believe it was as early as April.

Should we think of a similar thought process in terms of how much visibility you're going to provide your customers for 2015 pricing?

We are starting to get some requests again for that as we have the last 2 years. A little early to be thinking about that, but over the next quarter, we'll kind of get a feel for where the market is.

And clearly, we've only provided surety of pricing through the end of this calendar year. And when work starts to bid for the following year out, we'll think about how to respond to that when those requests are coming in.

Steve, you mentioned that the $8 price increase in cement had stuck in the early implementation markets, and you were looking forward to implementing it in April in some other markets. Can you tell us which were which, which were the early implementation markets and which come in, in April?

Sure. So really, the Mountain region is the one that really started off for us.

And most of the other regions are an April price increase.

Got it. And you've given some guidance in your slide deck and things like that about where you think you can get in terms of selling the various grades of oil well cement as a fraction of what you're selling out of each of your plants.

Can you kind of walk us through -- I mean, obviously, you've been 50% or so out of the Texas plant for a while, but can you walk us through kind of where you stand on those other plants?

Yes, so we have successfully made quality product in the 2 new facilities, and we're very happy with that. We've made quality product in Illinois.

And as demand opens up and as a lot -- again, just a lot of our work at the 2 plants that we have right now is through long-term contracts, 2- or 3-year contracts. So it's not unexpected that in the other markets, that there are already contracts in place that the oil well cement is being sold to.

So we are there, we produce a quality product and been able to show it to the major oil services providers. And we're ready.

And when an opening comes, we will be ready to bid to kind of go after some of the larger volume work versus just selling into a spot market in those marketplaces. So it doesn't happen overnight.

We have a very good quality product available in those plants and look forward over the next 2 or 3 years to a steady increase in sales into those marketplaces.

So fair to say that if you got a 25% of sales bogey in every place except Texas and Tulsa, and then 50% of those places, except for Texas, you're pretty -- you still got a pretty long ramp to go to hit those targets?

That's correct.

Okay, good. And then can you talk about what you're seeing on input costs in cement?

I mean, you talked about wallboard, and thanks for that, can you talk about what you're expecting in cement cost-wise?

Yes, I mean, our cement costs, really, this third quarter were flat, okay. So we didn't have any surprises.

We didn't have any major maintenance or anything, maybe a minor maintenance or 2 at a couple of the plants. So for the third quarter, they're flat, and we know we have some work coming up in the next quarter but would not nearly be the magnitude of work that we had a year ago.

Got it. But just as far as sort of ongoing input costs, so that seem pretty tame to you at this point?

It is.

Okay, good. Final question.

On the freight side, particularly on wallboard, are you seeing any movement there, expecting any increases?

Yes, we're expecting an increase in 1 month, 1.5 months from now, a pretty substantial increase.

Couple bucks a thousand maybe?

Yes, not quite that, but in that range.

I think it's John Baugh from Stifel. Quickly, could you update us on the EPA as it relates to production of portland cement in terms of implementation by not just you, but more importantly your competitors?

Where are we in the process? I know a while back you talked about expecting some players not to ante up and some capacity to fall out and then over time what the increased cost of production would be to those producers, any color there would be great.

Yes, it's really hard for me to say directly about what the competitors are doing. We know that our plants can comply in a timely manner when those regulations are promulgated.

So we're on track, to have all our plants to continue to operate without spending a tremendous amount of capital to make sure that happens.

Okay, so we'll see some CapEx from you but not a tremendous amount?

That's correct.

And would you speculate that the pricing that you're seeing relates at all to this issue? Is it just demand in general being strong and capacity really not changing?

I think we're finally starting to see construction pick up in the U.S. And I think that is the main driver right now.

Got it. And you mentioned project work, seeing optimism from your wallboard customers.

I was curious, could you put that in any buckets: commercial, residential, repair model, new construction, et cetera?

I really think it's across the board and it varies from market to market. So some markets that have started this recovery a little earlier, they have a broader base of sales than the others, so they might be ticking all of the boxes.

Whereas some of the later construction market recoveries, might be in the early stages, you might just be starting to see some general building and housing starting to pick up.

Most of my questions have been asked, but just had a question on the frac sand side. And it may be too early to say, but I think one of your arguments in terms of getting into the business has been you've worked with these oil services companies for some time to be an oil well cement supplier -- obviously for quite some time.

And I'm wondering, are you seeing some evidence yet of kind of the benefit of being both a frac sand supplier and an oil well cement provider as you try to gain some traction on the frac sand side?

I think we're a little too early there to get into that, especially we're not wanting to try to -- a relationship is 2 ways. You have to be sure you can deliver.

And until we have our mine up and running, it's a little hard for us to get that close as far as making long-term commitments.

Steve, could you talk a bit about the wallboard cycle, any -- I know the industry has consolidated a bit over the last several years, but any differences between this cycle and last, especially, a, given how early we are in the cycle in terms of volumes and your margins are already approaching where they were back in 2006 or thereabouts?

Yes, so I don't know what -- I don't -- as far as the cycle, the cycle is really related to opportunity, and that's related to housing. So I don't think there's anything different as far as the wallboard and as far as the demand for wallboard because it's predominantly a function of housing starts.

And you're right, we are early in recovery. Housing is starting to recover.

We're early there. And yes, profitability is up.

I don't think that has to do with the cycle as it has more to do with how we go to market. We go to market a little different no.

We've stopped giving job quotes. And we didn't think it made any sense because it was a one-way job quote, not really a 2-sided agreement, and that has truly made a difference this go around.

Okay. And that explains why the pricing power of, not only Eagle, but your competitors, seem a bit more robust than it was, let's say, several years ago even when housing was healthy?

Hard for me to speak for our competitors. It's just for us, we didn't like the way we were going to market, decided to go to market differently.

And again, to us, at that point in time, we said pricing is more important than volume, and we're still committed to that.

Okay. And then on frac sand, should we assume, given the fact that you're in a start-up mode, that it's a 3- to 4-year time horizon to reach full capacity in that business?

Or would you directionally expect to be somewhat earlier than that?

That really makes sense. It's a new business, and again, you don't enter these things with both guns a blazing, but you do enter it in a fashion you think makes sense for the marketplace.

And we're very comfortable with that. And we're not in this business for next year or the following year.

When we get into businesses or we expand one of our existing businesses, we make sure we have the material supplies in place for 40 to 50 years. So we're going to do business for a very, very long time.

And we're happy with the plan and our position and have moved -- made a lot of progress this last quarter in developing all the pieces that are required to get to where we plan on being 3 to 4 years out. So all of that requires a lot of work and a lot of work both at this level, as well as a few levels below, as well as our legal and environmental teams, making sure that all of the entitlements are in place that are required to get this business where we plan to have it in 3 to 4 years.

Thank you very much. Looking forward to the end of our fiscal year on the next call.

Thanks.