Texas Industries Earnings Call Nuggets: EBITDA and Hunter Plant & Pricing
Texas Industries (NYSE:TXI) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.
Ted Grace – Susquehanna: Maybe starting with that last comment that you made on $400 million of EBITDA could you give us some of the key building blocks or assumptions that underlie that number?
Kenneth R. Allen – VP, Finance, Treasurer and CFO: I’d be happy to, you know prior to the downturn in construction the average cement market in the United States was in a sold out position and required imported cement. We think that’s going to be the average condition of the cement market going forward once the recovery is fully realized in our markets and our experience has been that if you have good cement assets in a sold out cement market. You generate 30% or 35% EBIT margins. Given those margins and given the 7 million to 7.5 million tons of cement capacity that will eventually be able to shift and the associated aggregate ready mix results and margins that would go along with that. It’s all pretty consistent with around $400 million of EBITDA.
Ted Grace – Susquehanna: I realize this is probably the toughest question you are ever going to answer but, realistically when would you expect to get to the type of market conditions that might produce that kind of demand, for the industry and for TXI?
Mel G. Brekhus – President and CEO: Obviously we would expect that to occur quicker in the Texas market. As a matter of fact as you look at things affecting this market, we are probably pretty close to being there over the next year or so we think of total supply into the market today. The California region market balances a little different than it is in Texas with demand being still quite a ways below capacity and that’s why it will take a little longer for that region to catch up. But I will tell you in the meantime with our concentration of assets being in the Texas region and the opportunities to improve EBITDA in that region, in the near term there is a lot of value being created just in Texas. Then value will be created in California as things begin to pick up but it will take a little longer in California.
Ted Grace – Susquehanna: So just maybe on the pricing front if we go back to kind of the prior high where pricing on some of that in any way was in the mid-90s and now we are looking at something that’s in the 70s. How would you encourage us to think about the path between here in getting back to – the time table of the path to getting back to something in the high-80s to low-90s?
Mel G. Brekhus – President and CEO: Some of that will depend on input price movements as well and that’s why we talk about margins rather than prices. But given what we have seen in this past downturn and really in the past 20 years in the Texas, in the U.S. in that market in terms of improved market structure where we’ve seen imports being fairly rationale, where we’ve seen pricing in a terrible downturn drop and drop significantly, but not to where you think it would be in a high fixed cost, variable cost industry. There is no reason why we shouldn’t see pricing exceed the previous peak. Right now though that $400 million number is really based on EBIT margins that we’ve seen in the past with the (equipment)…