Texas
Industries Q4 '96
| (FOOL
CONFERENCE
CALL
SYNOPSIS)* By Greg Markus (MF Boring) Texas Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXI)") else Response.Write("(NYSE: TXI)") end if %> Alexandria, VA, July 16, 1996/FOOLWIRE/--- Texas Industries reported 4Q and FY96 results on July 12, 1996.
REPORT ON THE TXI CONFERENCE CALL
(July 15) -- Texas Industries is a large regional producer of cement, concrete, and aggregates. TXI's 84%-owned subsidiary, Chaparral Steel, manufactures high quality steel products from recycled steel for distribution throughout North America.
On Friday, July 12, TXI reported 4Q and FY96 results. The company earned net income of $80.0 million, or $7.05 per share, for the year ended May 31. Net income for the previous year equaled $48.0 million, or $3.88 per share. Revenues of $967.4 million were up 16% from last year. The net profit margin for FY96 was 8.26%, as compared with 5.78% for FY95 and 3.64% for FY94.
Per-share earnings easily beat the top end of analysts' expectations, which ranged from $6.65 to $6.75, according to First Call.
In keeping with its tradition, TXI held its teleconference with analysts the following Monday (July 15).
THE STEEL SIDE OF THE BUSINESS
In the 4Q, the Chaparral minimill operation shipped its highest volume of steel ever: 416,000 tons total. Net steel sales in the 4Q totaled $155.6 million, 4.5% above last year. Pre-tax earnings were up much more, (+52%) because costs of sales and other expenses were kept essentially flat. Share repurchases also helped to increase EPS to $0.45 for 4Q, versus $0.27 a year ago (+67%).
For the FY, EPS was $1.43 versus $0.67 for FY95 (+113%). Revenues of $607.7 million were up 14% from the prior year on record volume of 1.6 million tons and 9% higher realized prices.
The company is increasingly focused on lightweight structural steel beam fabrication. These beams are used primarily in low-rise commercial construction, manufactured home construction, and related applications. Demand remains strong. Pricing for the company's structural steel was basically flat sequentially, at a level 11% above last year's 4Q.
Pricing and volume on specialty bar quality (SBQ) and rebar continued to be somewhat weak in the 4Q, but the company noted in the conference call that the situation may be improving.
Despite the weakness in pricing for SBQ, average gross profit/ton for combined structural and bar steel actually rose sequentially (to $92 from last quarter's $85) as well as in comparison with last year's 4Q ($70), due to improved efficiencies that resulted in lower cost of sales/ton.
Scrap prices were stable in the 4Q, and have remained in a narrow, if somewhat high, range. Since Chaparral's structural-beam competitors also rely on scrap, they are all on equal footing in dealing with any scrap price increases.
Chaparral has intentionally increased its scrap inventory, which resulted in a decline in cash provided by operating activities for FY96 as compared with FY95. Because of markedly lower debt service, however, net cash flow was positive FY95 to FY96. Chaparral bought back $12.5 million worth of stock over the year and has $20 million in cash. Even with the capital improvements planned for the coming year (to increase capacity), cash flow is expected to remain at that level.
Long-term debt stood at $66.7 million at the end of FY96, as compared with $81.1 million last year. Current liabilities are also lower.
The regularly scheduled mill shutdown for maintenance will occur in the present quarter but should not be long or elaborate. The mill recently commissioned a third ladle furnace, and additional capital improvements are planned for the coming year to increase capacity by approximately 100,000 tons.
Imported steel is helping to meet demand that Chaparral and domestic competitors are unable to fill, but the company said they have experienced no pricing pressures at all due to imports.
Chaparral intends to continue to repurchase shares, and the capital improvement plans will not affect that, according to the company. Chaparral expects to maintain return on equity averaging in the high teens.
CEMENT/AGGREGATES/CONCRETE AND CONSOLIDATED BUSINESS OPERATIONS
For the c/a/c business, net annual sales of $359.8 million represented a 20% increase from last year. For the 4Q, sales of $100.5 million were 24% above a year ago.
Favorable trends in Texas construction markets were maintained during the year. Cement demand is roughly in balance with supply, even with some imports coming in. A 6-8% increase in cement prices announced early in July has stuck. For the 4Q, prices and tonnage sold in all three segments were higher both sequentially and as compared with a year ago. The business continues to operate at full capacity.
The c/a/c business plans to grow through acquisitions of small and medium-sized assets in the region (which has recently extended into California) and to focus on continuous improvement and innovation in internal business practices.
Real estate income also added to overall returns in 1996 "and should continue to contribute in the coming years," according to the company.
Altogether, TXI's net cash position increased to $28.1 million, as compared with $26.0 million at the end of FY95, despite $79.3 million in expenditures on capital improvements in the steel and c/a/c operations. Long-term debt declined by $25 million (to $160.2 million). Long-term debt to capitalization ratio is approximately 22% by my calculations.
MY BOTTOM LINE
TXI is very focused on satisfying shareholders. The company's expressed target is a consistent return on equity in the high teens. Respectable earnings growth going forward is anticipated due to generally favorable market conditions for the company's products, smart acquisitions and capacity improvements, and tight control over costs. Shareholders may also benefit from share repurchases and/or dividend increases.
--Greg Markus (MF Boring) * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
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