Eagle Materials Q3 Earnings Call Transcript

123jump.com Staff
19 Feb, 2009
New York City

Building materials manufacturer third quarter revenue fell 20% to $137.8 million with profits dropping by 50% to $11.3 million. Earnings per share were 26 cents against 50 cents in the prior year quarter.

Eagle Materials, Inc. ((EXP))
Q3 2009 Earnings Call Transcript
February 5, 2009 2:00 p.m. ET

Executives

Steve Rowley - President and Chief Executive Officer
Mark Dendle - EVP, Finance & Administration and Chief Financial Officer
Craig Kesler -- Vice President, Investor Relations

Analysts

Kathryn Thompson - Avondale Partners
Trey Grooms - Stephens, Inc.
Glenn Wortman - Sidoti & Company
Todd Vencil – Davenport & Co
Mike Betts - J.P. Morgan
Garik Shmois - Longbow Research
Alan Mitrani - Sylvan Lake Asset Management

Presentation

Operator

Ladies and gentlemen thank you for standing-by and welcome to the Eagle Materials Third Quarter Fiscal Year 2009. During the presentation all participants will be in a listen-only mode. (Operator instructions) Afterwards we will conduct a question-and-answer session. At that time if you have a question, please press 1 followed by the 4 on your telephone. At any time during the conference you need to reach an operator please press “*0”. As a reminder this conference is being recorded, Thursday, February 5, 2009. I would now like to turn the conference over to Steve Rowley, President and CEO. Please go ahead, sir.

Steve Rowley – Chief Executive Officer

Thank you, and welcome to Eagle Materials conference call for the third quarter of fiscal year 2009. Joining me today are, Mark Dendle, our Executive Vice President of Finance and Administration and CFO; and Craig Kesler, our Vice President, Investor Relations. 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 are 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.

Exceptional business performance is always magnified during difficult economic periods. Eagle Materials wallboard, paperboard and cement operational performance during the third quarter was outstanding. Our third quarter financial results were better than expected and reflect the incredible performance of our plants, sales and customer service organizations. When building materials and construction products sales opportunities become difficult and when the outlook for future sales opportunities continue to trend down, Eagle Materials knows how extremely important it is to rapidly redefine the focus of every valued Eagle employee towards completely new and different challenges that will improve our competitive position in a weak marketplace. This may sound easy but in reality it requires a lot of hard work and flexibility.

Eagle’s positive results show the amazingly swift transformation of our smart, loyal and dedicated employees. The willingness to quickly accept new direction has greatly benefited our shareholders. I have been asked to pass along a message from our employees to our shareholders. “Rest assured that we realized that the current austerity optimization process is a journey not a destination and that everyday we continue to improve our ultra competitive low cost positions while maintaining the absolute highest levels of safety, quality and customer service.”

Dramatically lower wallboard sales opportunities combined with a maximum amount of new wallboard capacity coming online during the past 12 months has the US wallboard industry operating near 50% capacity utilization, while several US wallboard plant closures have been announced. Competition for sales remained keen. To illustrate this severity of reduced wallboard sales opportunities, our third quarter quarterly comparative revenues declined 17% even with improved quarter order pricings and with the addition of our new Georgetown plant selling product in a new southeast region. The October wallboard price did not hold and in fact it created some marketplace disruption. And January wallboard price is partially holding, predominantly where pricing have been irrationally low. On a positive note, energy cost and freight to the marketplace continues to improve. American Gypsum’s margin improvement continues to come from exceptional execution in our plant, logistics and sales department. Currently the outlook for wallboard sales volume continues to decline because of further reduction in residential construction combined with waning commercial construction.

The combination of lower wallboard and paperboard sales volume combined with slightly higher energy costs, resulted in our wallboard and paperboard operating earnings declining by 31% when compared to last year''s third quarter. As I stated back in October, our wallboard operations returned to profitability in July. They have remained profitable each month since. Additionally, as previously mentioned, our wallboard''s net sales price has modestly improved as a result of the January price increase. An 18% decrease in sales volumes was the primary driver of the decline in Eagle''s quarterly comparative of cement revenues. A majority of the volume decline was in the Midwest and the West, where current economic conditions in construction remains very weak. Import of foreign cement into the US continued to receive in favor of supplementing regional supply demand imbalances with US manufactured cement from neighboring regional markets.

Our third quarter cement earnings were down 17% compared to the prior year, primarily due to our lower sales volumes, higher energy prices and operating our Illinois Cement plant at 60% capacity. Our concrete and aggregates operating earnings were down 87% from the prior year. Lower ready-mix and aggregate sales volumes, combined with lower ready-mix and aggregates pricing were the major factors contributing to our reduced revenues and earnings.

I will now turn it over to Mark to discuss Eagle''s financial position.

Mark Dendle – Chief Financial Officer

Thank you, Steve. Eagle''s financial position continued to improve during the quarter, thanks to operating cash flow improving significantly from the previous quarter to $41.2 million. Capital spending in the quarter was approximately $1.8 million. We anticipate our capital spending to remain at these low levels during the current economic downturn. As of December 31, 2008 our net debt to capital ratio improved from 48% in the September quarter to 45% in the December quarter. We are in the process of repurchasing $100 million of our senior notes. The purchase will be funded by borrowings under our revolving credit facility, which currently has a lower cost of debt than our senior notes. In addition to lower cost borrowings, the purchase of the senior notes modestly reduces our outstanding debt and improves our financial flexibility with the combination of fixed term debt, variable revolving debt in cash, while at the same time, maintaining a large amount of readily available liquidity.

Thank you for attending today’s call. We will now move to the question-and-answer session.

Question-and-Answer Session

Operator

(Operator Instructions) Ladies and gentlemen if you’d like to write for a question please press 1, followed by the 4 on your telephone. You’ll hear a three tone count to acknowledge your request. If your question has been answered and you’d like to withdraw your registration please press 1 followed by the 3. One moment please for the first question and our first question comes from the line of Kathryn Thompson from Avondale Partners. Please proceed with your question.

Kathryn Thompson - Avondale Partners

Hi, thank you. First on the wallboard segment, where did pricing end up at the quarter end versus the quarterly average that you stated?

Steve Rowley

Very near the average, right around the $105.

Kathryn Thompson - Avondale Partners

Okay and also given that your, there''s already been some capacity takeouts over the past couple of months, do you see additional capacity coming off the industry other than that’s been announced. And if so where geographically do you think it should come out?

Steve Rowley

We have not seen or heard of anybody announcing capacity coming out of the marketplace. The only thing that we know, the majority of the new capacity that’s been added in the last one to two years has all been predominantly in the Mid West or East predominantly in the East. So that’s where the biggest supply-demand imbalance currently resides.

Kathryn Thompson - Avondale Partners

Okay. Moving to cements, did you saw your cement volume out of plants in the quarter and what are your prospects for the current quarter?

Steve Rowley

No, we have not sold out off our Illinois cement plant for sometimes now, for all of this year. I think in the quarter this year we sold off other plants with that exception. Go ahead.

Kathryn Thompson - Avondale Partners

For excluding Illinois which is running at two-third capacity as you said earlier excluding Illinois have your other plants sold all its volume?

Steve Rowley

We continue to sell out our volume, although we have grown some inventory out there.

Kathryn Thompson - Avondale Partners

Okay. Kind of the same question on cement side as we did in wallboard, what was pricing at the end of the quarter, does it includes the average and kind of tagging onto the previous question, do you anticipate idling of any facilities in ''09?

Steve Rowley

The price was about the same as the average right there the $95 range and if business does not pickup in the west we certainly will consider having to idle some capacity out there as well.

Kathryn Thompson - Avondale Partners

As far as pricing goes, we are hearing that if you include transport, import pricing is about on par with taxes on current production. Could you confirm if that is a similar trend that you are seeing?

Steve Rowley

Yeah, I think you have to take that on a case-by-case basis in the board and in the marketplace. So that would be hard for me to discuss. I’d just tell you, I know that in Texas even though the import prices have come down dramatically, it is nowhere near our cost of manufacturing.

Kathryn Thompson - Avondale Partners

Okay, perfect. Also to the aggregates, I said that there was a bit of a mix that continued to be a factor in your pricing in your just reported quarter. Do you expect mix to continue to be a factor in the current quarter?

Steve Rowley

Yes, this quarter maybe not as much because a lot of that had to do with a base or a sub-base job in Northern California. With the weather being difficult, now there is little work for taking place this quarter. Maybe that will moderate the fourth quarter, but again the large volume of our current sales are less than aggregate is going into base market.

Kathryn Thompson - Avondale Partners

Okay. All of it seems equal on in terms of aggregate pricing in California. I understand mix was an issue in this quarter and the previous quarter, but all things equal for your California aggregate pricing. What has pricing done sequentially and year-over-year?

Steve Rowley

It essentially hasn’t moved much. It may move a little on a specific job, but in reality even if you build some inventories in aggregates, you don’t have a tremendous amount of capital tied up in the inventory build. So it’s much easier just to be patient and wait till the market turns rather than to try to dump that inventory into the marketplace.

Kathryn Thompson - Avondale Partners

So would you characterize I guess flattish year-over-year?

Steve Rowley

That’s correct.

Kathryn Thompson - Avondale Partners

Okay and what about Texas?

Steve Rowley

Texas, the same thing, the issue always in Texas because the deposits are fairly poor, there is fair amount of base that has to…it will be mined when you are producing the last aggregates. And so the base tends to get pretty competitive where as the pricing on your concrete aggregates and asphalt aggregates tends to remain pretty stable.

Kathryn Thompson - Avondale Partners

Okay. What was D&As for the quarter?

Steve Rowley

Deprecation and amortization?

Kathryn Thompson - Avondale Partners

Yes.

Steve Rowley

For the quarter ended December 31st it was $12.7 million.

Kathryn Thompson - Avondale Partners

Okay and then also I guess interest expense on annualized basis will be about $1 million below on a quarterly basis from the Q3 run rate, is that a correct assumption?

Steve Rowley

That''s correct.

Kathryn Thompson - Avondale Partners

Okay. That''s all I have for right now. Thank you.

Operator

And our next question comes from the line of Trey Grooms from Stephens, Inc. Please proceed with your question.

Trey Grooms - Stephens, Inc

Good afternoon. A couple of questions, one Steve, with cement, volume and demand obviously down, can you talk about how you guys are running your cement plants differently in this environment. And then also how you see plant cost trending in ''09?

Steve Rowley

Sure. It''s really important to properly maintain a cement plant as we said all along. We stay ahead of that instead of getting behind it. So properly maintained means these plants are very efficient and they generate tremendous amounts of free cash flow. But when the market turns and they have to operate not at full capacity, it really requires a completely different mindset throughout the entire organization. Cost reduction versus producing that incremental tonnage capacity becomes paramount, but you have to do that not at the expense of maintenance. So you force the efficiencies to be better and the cost of the materials that you use as well as you find ways to use less energy and less fuel and ultimate fuels that may cost a little less to produce the products, so tremendous amount of energy that goes into that. You also minimize your maintenance cost as opposed to really bringing in a lot of outside help to have an outage instead of being I guess get ten day outage, perform it in eight or seven days, that gives you a lot of contract. Lots and lots of contractors are coming in to help out and you just go ahead and accept that your maintenance is going to be 10 or 11 or 12 days and you perform all the maintenance with your own employees.

Trey Grooms - Stephens, Inc

Okay. And so with all that said, kind of looking I guess at cement cost or plant cost on a per unit basis, would you expect that to trend down somewhat in ''09 given what you just said?

Steve Rowley

The answer is yes, we believe that’s going to be the case.

Trey Grooms - Stephens, Inc

Okay. And then for wallboard, would you mind giving us a kind of your best guess on where you see wallboard consumption checking out in ''09?

Steve Rowley

It’s pretty difficult right now and if I had to put a guess, the front half is going to be annualized at a less than 20 billion per annual basis. Let’s hope that the second-half of the year is a little higher and maybe would come in, near that 20 billion square foot of demand, for ''09. But the front half is definitely less than that and trending down.

Trey Grooms - Stephens, Inc

Okay, and then last question is, with all of the distressed assets in aggregates in cement industry we are seeing out there right now, are you guys seeing anything interesting, that you think market possibly make a run at some point this year.

Steve Rowley

We are always open to look at opportunities, but it has to be the right opportunity. I think it''s a little early but if things continue to decline from an economic perspective maybe something becomes available that keeps our interest.

Trey Grooms - Stephens, Inc

Okay, thanks a lot, and congratulations on a good quarter.

Steve Rowley

Thank you.

Operator

Our next question comes from the line of Glenn Wortman from Sidoti. Please proceed with your question.

Glenn Wortman - Sidoti & Company

Good afternoon, guys.

Steve Rowley

Good afternoon.

Glenn Wortman - Sidoti & Company

Thank you, aside from, yes, the cost controls you just discussed, is there anything going on in cement that’s allowing you to preserve margins?

Steve Rowley

That’s really the lever that we are pulling.

Glenn Wortman - Sidoti & Company

Okay. And then looking to the paperboard segment, what''s behind the profitability improvements there, because it looks like you are seeing some volume declines as well but margins look like they are going higher.

Steve Rowley

Very similar to what we talked about in cement; we were able to buy fiber that’s nice right now, that’s something that’s just happening because of the economy. Fiber costs are lower but we dramatically reduced the freight to bring the fiber in. We have reduced our natural gas consumption by 27%. It is a huge impact to the cost of producing paper. We reduced our waste of quality product by 75% versus last year, and we have reduced our chemical spend by more than 34% by operating that machine better. So, it is really that focus on cost control making the difference.

Glenn Wortman - Sidoti & Company

Okay. And then finally with respect to cement pricing, it came down a little bit in the quarter. Was that due to weakness across all your markets or was that in any particular market?

Steve Rowley

It is primarily in the Midwest and the West, although things are starting to get difficult in all markets.

Glenn Wortman - Sidoti & Company

Okay. Alright, thank you very much.

Operator

And the next question comes from the line of Todd Vencil from Davenport. Please proceed with your question.

Todd Vencil – Davenport & Co

Hi guys, how are you? Nice job on the margin performance in the quarter.

Steve Rowley

Thank you.

Todd Vencil – Davenport & Co

Remind me the magnitude of the January wallboard price increase?

Steve Rowley

The magnitude was 10% to 15% I believe. That could settle in about 10%.

Todd Vencil – Davenport & Co

Okay and only part of that held. Would you want to venture a guess as to how much of that held?

Steve Rowley

It''s still a moving target, less than half though. But it''s still a moving target.

Todd Vencil – Davenport & Co

Okay. And when you think about wallboard, do you have a feel for how much of a benefit you are getting from lower energy cost at this point?

Steve Rowley

Sure do. From a sequential perspective, we have had about a $7 or $8 benefit. Year-over-year I think we have had a benefit of about 2.5 months or so I think.

Todd Vencil – Davenport & Co

Okay. And do you have those numbers off your head for cement as well?

Steve Rowley

For cement it’s a minor benefit there. I think and in fact just the opposite. Power cost are up about a $1 and fuel cost is essentially flat.

Todd Vencil – Davenport & Co

Any outlook for that to change or does that basically where you think you are going to be for a while?

Steve Rowley

No. I think we can improve on that. We are working on alternatives that will help improve those costs.

Todd Vencil – Davenport & Co

All right Steve, I have realized this is question everybody should have an answer, but I’d love to hear your thoughts on it, as the most educated of the two of us who are talking right now, anyway. With demand continuing to fall off, I am thinking specifically about wallboard, demand continuing to fall off and with really nice decline in your energy cost, looking at something like a 50% capacity utilization number, how is it that the competitive situation is allowing for you guys to continue to get price in that business? And that’s what I am really scratching my head about. But I am glad you did it and you are doing a good job, but do you think you can continue to do that this year?

Steve Rowley

You just have to look. Now you are talking about maybe some regional differences. The majority of this price increase as I mentioned a little bit earlier on the prepared comments was in some markets that were just irrationally low in the pricing, just make a note of that and people were at or below cash cost on average in those marketplaces. So, it makes sense to get some price increase there and we are achieving that. As you go forward, it''s really a function of each competitor and how efficient they are but as I look at wallboard, I am looking at all of our plants here and I see waste in the 1% level, the low 1% range. That’s incredible performance and that’s what gets your cost below and gives you that advantage over the price in the marketplace. So, when you get to capacity utilization in the 50% level, its more a function of what is your delivered cash cost in the marketplace, and as you are more effective at that you are going to make money, if you are less effective at that or there is some transportation costs that impact that, then you have an advantage and you have a chance and if those costs move in. you are not going to continue to operate below cash costs, so you will have price improvement when those things occur.

Todd Vencil – Davenport & Co

Okay, that makes sense. Have you seen any in the areas maybe where the price increases are holding, where the pricing was irrationally low, are you seeing any discounting behavior by the competition, or is everybody kind of hanging in there?

Steve Rowley

In those cases, I don’t think we achieved much benefit, but I don’t think we gave much back this time. In November, we actually did get some back, but the October-November price increase was little difficult. This one I have not seen a lot of give back from the original price.

Todd Vencil – Davenport & Co

Got it and on the cement side, I mean any kind of regional pricing or competitive differences any price standout has been either, I mean you have talked about what the demand situation looks like, is anybody really pushing down on price in any of your markets?

Steve Rowley

We have not seen that in any market.

Todd Vencil – Davenport & Co

Okay. And then final question I guess, in the concrete business, can you just talk a little bit about how the sort of price cost dynamics are sort of playing out there where you guys are operating?

Steve Rowley

That’s difficult and further in the value chain you go down, the tougher the competition you always get. So that’s very difficult for us in both the Texas market as well as in Northern California market. So margins are pinched down very-very small in both of those businesses.

Todd Vencil – Davenport & Co

Has your material spread declined in the last quarter?

Steve Rowley

Maybe not in the last quarter but they are pretty low.

Todd Vencil – Davenport & Co

Got it, okay, thanks a lot.

Operator

Your next question comes from the line of Mike Betts from J.P. Morgan. Please proceed with your question.

Mike Betts - J.P. Morgan

Hello?

Steven Rowley

Hello?

Mike Betts - J.P. Morgan

Hi, Steve, I had a number of questions. Can I just firstly clarify, you talked about $7 to $8 in terms of the natural gas benefit, that’s per 1000 square foot or is that some other unit?

Steven Rowley

No, that’s correct.

Mike Betts - J.P. Morgan

Okay, could I ask then firstly, how much hedging you had in the quarter? I mean if you had all the benefit now of the lower natural gas prices or was there any hedging in place?

Steven Rowley

We had some hedging in place not a tremendous amount, but we had some hedging in place, less than half maybe 40%. And then going forward we are at about that same level 35% to 40% hedged and it''s fairly low numbers. Okay, so less than $7.

Mike Betts - J.P. Morgan

Okay and the decline in waste paper costs and therefore I guess in liner board paper costs, was that a benefit in the quarter in terms of a significant dollar saving there as well?

Steven Rowley

Absolutely.

Mike Betts - J.P. Morgan

Are you able to quantify what the saving was?

Steven Rowley

The fiber cost is down from about $165 to about $110.

Mike Betts - J.P. Morgan

That’s per ton of fiber?

Steven Rowley

Per ton of fiber, that’s correct.

Mike Betts - J.P. Morgan

And how many tons of fiber did you use per size and square feet of wallboard?

Steven Rowley

I would have to get, I will get back with you on that.

Mike Betts - J.P. Morgan

Okay, thank you. And maintenance cost, I don’t think there were any in Q3. Correct me if, in terms of major cement plants down for maintenance in Q3. Are you expecting any in Q4?

Steven Rowley

Yes, we will have a long kind of maintenance inventory shutdown at Illinois Cement even though we have been running that with reduced capacity for winter. It has been very difficult there. So we do have some maintenance to do, and with sales very, very weak, we are going to take an extended outage and perform some maintenance.

Mike Betts - J.P. Morgan

So will we see a cost that was much different from in terms of maintenances in Q4 as this year versus Q4 of last year?

Steven Rowley

I would have to check and see if we had maintenance at another facility last year’s Q4, but I am not certain. I am guessing you will see a little difference.

Mike Betts - J.P. Morgan

Okay, and then I had a question if I could just on the financial side. Obviously I guess you think and I guess this one is for Mark. Are you seeing some of the committed credit facilities to refinance this bond? What you now have left in terms of committed credit facilities from the banks?

Mark Dendle

Well the bank credit facility is a $350 million facility and we will be drawing down $95 million for the purchase of the notes and then we have about $15 million outstanding on letters of credit which also goes against the facility.

Mike Betts - J.P. Morgan

And how long is it committed for?

Mark Dendle

Through June 2011.

Mike Betts - J.P. Morgan

Okay. And really a minor one I guess but I just wondered why the tax rate increased in the quarter. Is that the nine-month tax rate a pretty good guide to what you would expect for the year? And why did it go up?

Mark Dendle

It went up for several minor reasons and adjustment in the depletion factor. Also true up of the state taxes and once we follow the return, the actual return in December of 2008 for the prior year, we were also able to true up the rates for any returns to accrual differences.

Mike Betts - J.P. Morgan

Okay. That''s good and then last one just quickly for Steve. From your comment earlier Steve the $15 cement price increase, the industry stride in some market I mean no sign at all of that sticking in any of your market by the sound of it, would that be fair judgment?

Steven Rowley

Absolutely.

Mike Betts - J.P. Morgan

Okay. Thanks very much.

Operator

And our next question comes from the line of Garik Shmois from Longbow Research. Please proceed with your question.

Garik Shmois - Longbow Research

Hi, good afternoon. Thanks for taking my call. Just first off on aggregate prices, just wondering if you have any price increases in the market right now for first of the year?

Steven Rowley

We do not.

Garik Shmois - Longbow Research

Okay. Any thoughts on whether you might be able to secure some price increase in 2009.

Steven Rowley

I believe the aggregate inventories released in our market are pretty high. And so until the inventory levels come down it will be difficult.

Garik Shmois - Longbow Research

Very good and just lastly most of my questions have been answered, just wondering as we look at cement import and there has been lot of discussion about whether or not they will make way into the US and most of the answers we have been getting is no, but one of the markets that may be vulnerable in our estimation maybe Northern California. Just wondering, assuming lets say imports do enter the Northern Californian market, although, pricing domestically produce cement, would it pose a threat theoretically to your cement produced out of the Nevada facility?

Steven Rowley

We really have a very small amount of sales in Northern California and it would just have a minor impact.

Garik Shmois - Longbow Research

Okay, very good, good quarter. Keep it up.

Operator

And your next question comes from the line of Alan Mitrani from Sylvan Lake Asset Management. Please go ahead.

Alan Mitrani - Sylvan Lake Asset Management

Hi, thank you. Just to understand the debt buyback, looking at the tranches of the debts you have, you said you bought back the Series A from 2005 and the Series A 2007 issues, is that correct?

Steven Rowley

It’s primarily the 2007. It primarily came out of the 2007 Series.

Alan Mitrani - Sylvan Lake Asset Management

If the tranch A from 2007 was only $20 million and the tranch A from ''05 was only $40 million, so maybe you can tell us which other tranches were taken out?

Steven Rowley

It was primarily out of the 2007 Series A, B and C, okay?

Alan Mitrani - Sylvan Lake Asset Management

A, B and C.

Steven Rowley

A, B and C with a little bit out of the ''05.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And is the goal, maybe I can understand the goal because you were good at laddering these explorations throughout starting in 2012/2014. I understand you can get a little bit buying back at a discount, 5% discount or maybe save some by arbitrage and the LIBOR, because LIBOR is low now on the credit line versus the fixed rate here. But is the goal to push out maturities and then figuring you will be able to over the next couple of years pay down the bank revolver?

Steven Rowley

Clearly it’s just really to give us the flexibility that we need, almost to the point of, if the world really has some very-very difficult issues, what do you do if these markets really collapse? We don’t have any worries there. We feel that we are able to maintain the current amount of debt. We used the $400 million without having any issues with covenant requirements. But as the world remains uncertain we wanted to have the flexibility to not have a gross debt covenant but more of a net debt covenant. So switching over to having a piece of term debt, a piece of variable revolving debt as we all cash on the balance sheet, it allows you to handle any situation that may potentially come your way.

Alan Mitrani - Sylvan Lake Asset Management

Okay, so just understood. Thank you. I think I understand, basically what you are saying is this gives you the ability if you wanted to deplete down pieces of the debt. As you go to pull down your gross debt where as before you could not pay it down because it was fixed and tranched out?

Steven Rowley

That’s correct.

Alan Mitrani - Sylvan Lake Asset Management

Perfect. Okay, also do you expect to stay profitable this whole year, this whole coming year?

Steven Rowley

Yes we do.

Alan Mitrani - Sylvan Lake Asset Management

Okay and do you feel like because your wallboard business has managed to stay profitable basically thought this downturn maybe one quarter out didn''t. I think you came close. Do you think wallboard business also can stay profitable for that, even with permits and housing starts continuing to trend down?

Steven Rowley

Yes I do.

Alan Mitrani - Sylvan Lake Asset Management

And then lastly commercial construction, you’ve always had a decent crystal ball, seems like there''s not much on the drawing board for the back half of ''09 into 2010. What’s your best guess as to what kind of commercial construction declines you are going to see for calendar ''09?

Steven Rowley

Commercial construction is really an 18 to 24 month build out. So far the last maybe, certainly 6 to 9 months we have been starting to align. So, another 6 to 9 months out we should kind of hit a very low level and then see whether anything new comes about where you might start to see an improvement, but clearly it''s going to continue to wind for another six to about nine months.

Alan Mitrani - Sylvan Lake Asset Management

And the stimulus package when it gets passed how hard do you see that impacting you?

Steven Rowley

Probably not a whole lot in calendar ''09, the majority of that would start to impact us in ''10.

Alan Mitrani - Sylvan Lake Asset Management

And I realized there’s not much money around for acquisitions these days but what are you seeing from distressed sellers or how often you are looking at books from competitors or small assets and maybe just give us a sense to what the market is like?

Steven Rowley

Yes, I think it''s still a little early while there are some assets that will become unavailable. We haven’t seen anything that really has enticed us to do a lot of work, but more and more become available every month. And we will remain vigilant because we think there are something’s that will really improve our position.

Alan Mitrani - Sylvan Lake Asset Management

Great, thank you.

Operator

Mr. Rowley, there are no other questions at this time. I will turn the call back to you.

Steven Rowley

Thank you. I look forward to talking to you again in next quarter.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.