Eagle Materials Inc (NYSE: EXP) Q4 2020 Earnings Call Transcript

Eagle Materials Inc (EXP) Q4 2020 earnings call dated May 19, 2020

Corporate Participants:

Michael R. Haack — President and Chief Executive Officer

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Analysts:

Trey Grooms — Stephens Inc. — Analyst

Brent Thielman — D.A. Davidson & Co. — Analyst

Anthony Pettinari — Citi Research — Analyst

Jerry Revich — Goldman Sachs — Analyst

Stanley Elliott — Stifel Nicolaus — Analyst

Philip Ng — Jefferies — Analyst

Josh Wilson — Raymond James — Analyst

Robert Muir — Berenberg — Analyst

Keith Hughes — Suntrust Robinson Humphrey — Analyst

Robert Whitworth — Exane BNP Paribas — Analyst

Adrian Huerta — J.P. Morgan — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 Eagle Materials Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Michael Haack, President and CEO. You may begin sir.

Michael R. Haack — President and Chief Executive Officer

Thank you. Good morning. Welcome to Eagle Materials conference call for our full year and fourth fiscal quarter of 2020. We are glad 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 made in connection with the 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 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 press release.

This morning, let me start by remarking on two matters that are even more important than the earnings we are reporting on today. First is the health, safety and well-being of our employees. The second is being responsible citizens and good neighbors in the communities in which we do business. As it relates to COVID-19 these two could not be more closely related. Regarding our safety response to COVID-19, we have been proactive in establishing protocols and processes that protect the safety and health of our employees, customers and business partners. This early action has enabled us as an essential business to remain open safely in all locations. We are fortunate in that we operate and serve the U.S. heartland and Sun Belt states, own and control our local raw material inputs and have a fully domestic supply chain.

And most importantly, in this situation, virtually everywhere we operate construction has been deemed essential allowing us to make and sell our products, which brings me to our earnings this quarter. We entered the quarter with a strong momentum in terms of demand across our markets. We did not experience much business interruption for our fourth fiscal quarter in our markets. Posting record quarterly revenue should be no surprise for this reason. In the case of COVID-19, geography matters. In these unprecedented times rather than trying to predict the unpredictable, our emphasis is on deployment of rapid feedback groups. This involves being in intimate contact with our local operations as they navigate in this environment. We are a local business in many ways and can react quickly to any market changes as they occur.

We have successfully navigated severe cycles before and some would say we have an unrivaled track record in this regard. We navigated through the longest and deepest construction recession in U.S. history and made money every year, which very few in our space can claim. We are well prepared to respond quickly as issues arise. Right now, part of our preparedness strategy is to conserve cash and strengthen our already strong balance sheet. Out of an abundance of caution, we announced during the quarter that we suspended our dividend. I want to emphasize and be very clear that suspending the dividend was part of a comprehensive plan of managing cash through this environment. This plan also entails internal — curtailing nonessential capital expenditures, share repurchases, controlling inventory levels and a host of other prudent measures.

It is timely and coincidental from a cash strategy standpoint that we have made some progress in our program of portfolio shaping. We announced this quarter the sale of a non-core ready-mix and Aggregates assets in California. The sale of these assets is the result of a long-term effort that emerge where alternatives ownership value exceeded operating value for us. We also were able to sell our frac sand distribution business during the quarter and we continue to explore alternatives for the remaining frac sand business. We fully expect that the uncertainties around COVID-19 and its effects on the economy will be released over time. We are well-prepared to capitalize on opportunities in construction materials that will arise in the wake of these uncertain times. We are three times larger on the Cement side of the business than we were a decade ago.

We have built a strategic network of plants and terminals in the U.S. heartland. The latest addition was the recently acquired Kosmos Cement plant that we began operating as an Eagle plant in March. Our Wallboard business has attained unrivaled prominence for low-cost production and customer satisfaction. In March we completed the equipment installation to expand the capacity of Republic Paper. We will finalize all aspects of the installation over this summer when travel reopens but we are already seeing the benefits of this new equipment through added capacity. We are healthy. Our balance sheet is strong and we are poised to emerge from this uncertain time with the wins at our back. In this regard, I think it is important that we not underestimate the power that already announced monetary and fiscal government stimulus will create for our businesses.

Construction has led the way to recovery in so many prior cycles and may well lead the way again. Our U.S. infrastructure needs are well chronicled one way or another roads and bridges will be built and repaired. Low interest rates make homes more affordable and we are not building at the pace that matches household formation and replacement needs. There are many reasons to remain constructive about the long-term. We still look forward to the separation of the two businesses, but currently have no updates on timing for that transaction. That’s all for me as far as an introductory remarks.

Now let me turn it over to Craig to go through the financial results for the quarter.

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Thank you, Michael. Fiscal year 2020 revenue was a record $1.5 billion, up 4% from the prior year reflecting increased Cement sales volume and pricing, improved Wallboard and Paperboard sales volume and the addition of two businesses acquired during the year. The acquired businesses contributed approximately $32 million of revenue during the year. Revenue for the fourth quarter improved 11% to $315 million reflecting a very strong end to our fiscal year. Annual diluted earnings per share improved 14% to $1.68. As we highlighted in the press release both years include the impact of several non-routine items, most notably an asset impairment charge related to the Oil and Gas Proppants business.

For fiscal 2020 diluted earnings per share includes the effect of a significant tax benefit related to the CARES Act, business development related expenses and the effect of an outage linked to the expansion of our paper mill. Excluding these non-routine items, annual earnings per share improved 10%. The CARES Act enabled us to use the tax assets generated primarily by the Kosmos acquisition and carried back to recover taxes paid in prior years at higher tax rates than we pay today. The fourth quarter earnings per share comparison is also affected by many of these same non-routine items. Adjusting for them consistently each year Q4 earnings per share would have increased by 45%. Turning now to our segment performance, this next slide shows the results in our Heavy Materials sector, which includes our Cement, Concrete, and Aggregates segments.

Annual revenue in the sector increased 17% driven primarily by an 11% improvement in Cement sales volume, improved pricing in both Cement and Concrete and the results of the Concrete and Aggregates business we acquired in August of 2019. Operating earnings increased 12% again, reflecting the improvement in sales volume and pricing. Moving to the Light Materials sector on the next slide, annual revenue in our Light Materials sector declined 4% as improved Wallboard and Paperboard sales volume was offset by an 8% decline in Wallboard sales prices. Annual operating earnings declined 12% to $190 million reflecting lower net sales prices, partially offset by higher sales volume. The Light Materials annual results also reflect the impact of two extended outages at our paper mill to tie in new equipment. The impact of the outage on the annual results was approximately $4.5 million. In the Oil and Gas Proppants sector annual revenue was down 44% and we had an operating loss of $15 million.

This business has come under increasing pressure in recent months as lower oil prices further reduced drilling and hydraulic fracturing activity and we continue to adjust our operations to minimize operating costs. In late March, we sold the distribution business of the Proppants sector and we continue to explore alternatives for the remaining mining business. Operating cash flow during fiscal 2020 increased 14% to $399 million. Total capital spending declined to $132 million. In early March, we completed the acquisition of the Kosmos Cement business funding the purchase through a term loan syndicated through our existing bank group. During fiscal 2020 Eagle returned approximately $330 million to shareholders through share repurchases and dividends. In fiscal 2021 we expect capital spending to decline nearly 50% to a range of $60 million to $70 million.

And as we previously announced and Michael highlighted, we have suspended share repurchases and future dividends. Finally, a look at our capital structure; at March 31, 2020, our net-debt-to-cap ratio was 60% and we had $119 million of cash on hand. Our net-debt-to-EBITDA leverage ratio was 2.9 times. Total liquidity at the end of the quarter was nearly $300 million and we have no near-term debt maturities. In April, we announced the sale of our Concrete and Aggregates business in Northern California for $93.5 million. These proceeds combined with the tax refund stemming from our NOL carryback and operating cash flow further improves our liquidity position going forward.

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

Questions and Answers:

Operator

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

Trey Grooms — Stephens Inc. — Analyst

Hey, good morning and thank you for taking my questions. First off, I guess on the organic cement volume, very strong in the quarter. Also, your Wallboard volume was also very solid, especially given the difficult comp you guys had. Understandably this was prior to much impact from COVID-19 but can you talk about what you’re seeing since the end of the quarter — demand trends on both sides of your business in April and maybe into May could give us a sense of how things are trending a little bit further into this pandemic?

Michael R. Haack — President and Chief Executive Officer

Yeah. Trey, this is Michael. I could mention a few things on that. One of the things that I wanted to highlight was — geography does matter in this situation. We’re a U.S. heartland producer. The heartland has not been impacted as much as the East Coast or the West Coast. So our demand volumes have remained pretty stable.

Trey Grooms — Stephens Inc. — Analyst

Okay. And that’s on both sides of the business, Cement and Wallboard?

Michael R. Haack — President and Chief Executive Officer

That’s correct.

Trey Grooms — Stephens Inc. — Analyst

Okay, great. Thank you for that. And just kind of an update on the Cement price; I know it was slated for April, it sounds like a lot of markets have delayed until I think, it might be June. How are your markets looking from a cement pricing and the timing there?

Michael R. Haack — President and Chief Executive Officer

Yeah. What you said is accurate. There’s a general delay of that cement pricing to that June timeframe and then we’ll reevaluate the market at that time and determine if it’s fit at that time. Right now, that’s our plan.

Trey Grooms — Stephens Inc. — Analyst

Okay. And that was in all of your geographic markets you’re in?

Michael R. Haack — President and Chief Executive Officer

Not totally a 100% of that. There was a few markets that we’re able to give some — the price increases were enacted but for the majority of the markets that’s correct.

Trey Grooms — Stephens Inc. — Analyst

Okay. Last one for me and this is more kind of big picture; during the last downturn Wallboard pricing was hit pretty hard. And we’ve got a lot of uncertainty on the outlook here in the near to medium term. But can you talk about what has changed for that business? And how or why this — if we were to enter a downturn here, how it could be different for the Wallboard business there from a pricing standpoint? Any changes you’ve seen in the industry or with your business?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, Trey, this is Craig. It’s a good question. And we are challenging ourselves over the last two or three months and thinking through alternative scenarios, but one of the things we do come back to — as you think about where we were 2007-2008, first on the demand side, like the — the housing industry was pushing 2 million housing starts and so you had a [Indecipherable] on the demand side. We haven’t even approached those levels of housing starts so far this cycle. We started to see some good momentum January and February. But we’re certainly nowhere near peak levels of homebuilding. We’re well below that. The other thing I think people forget about a lot is that we all remember the demand side, you’ve got to also remember, we added a significant amount of capacity in 2006 and 2007, 6 billion to 7 billion square feet, 15% to 20% new capacity just as you were entering into the Great Recession.

It was a one-two punch with demand down and supply rising and we enter this period of uncertainty with frankly the opposite issue. We don’t have any new capacity being added, and frankly some of the raw materials, as we’ve talked over the years are becoming harder and harder to find if at least not more expensive to find. So we are in a very different position than where we found ourselves 13 years ago. And then there are other structural changes in the business, consolidation, etc, that have also positioned our business better and so we enter this — and we were part of that capacity addition in terms of our Georgetown, South Carolina plant. So a lot of things are different as we [Indecipherable] go forward here.

Trey Grooms — Stephens Inc. — Analyst

All right. Well, thanks for the detail. Best of luck and stay safe. Thank you.

Operator

Thank you. And our next question comes from Brent Thielman with D.A. Davidson. Your line is open.

Brent Thielman — D.A. Davidson & Co. — Analyst

Hey, great, thank you. Good morning. Maybe just a follow-up on Craig’s question on the Wallboard side; you mentioned, it sounds like demand’s held up pretty well here in your end markets but I know sometimes pricing can be influenced at a national level, and I think some of our other markets have been hit. Have you seen, I mean relatively good pricing stability so far this quarter?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, Brent, I would tell you really our price and you can see in our quarterly results have been flat since almost this time last year and you saw that in this most recent quarter. We exited the quarter about the same as the average.

Brent Thielman — D.A. Davidson & Co. — Analyst

Okay. Okay, that’s great. And then a question on Kosmos because it’s relatively new to us, but heard from some others, delays in Kentucky on new public projects. Can you talk about that assets’ ability to kind of navigate that? Can you offset some of that or all of that by shipping into some other surrounding markets?

Michael R. Haack — President and Chief Executive Officer

Yeah, that asset in itself, we’ve only owned the asset now for since March 6 that’s kind of when we took over that asset. We went directly into an outage to make sure we saw we had in the facility and then we’ve been working. If you remember correctly to that asset came with a pretty substantial distribution network. So, we do have facilities that spans several different states for distribution. Our sales team has been pretty consistent with the past team. We had put in management from Eagle for the Vice President of Manufacturing and the Finance side of the business to get some of Eagle’s culture in there too with it. But the team has done a fantastic job, the existing sales team and everything of really utilizing that network that we have out there and in acing the product and moving it where the sales are at this time. As I said, when we took it, we do have distribution in Pennsylvania and that was a trying market at the beginning with it and they’ve been able to reallocate and move that product around a little bit. I think they’re doing a fantastic job. More will come as we own it for more time. We’re just in it a couple of months now. So I could give you more color in the next quarter or quarter after that, after we get some time with it been under our belts.

Brent Thielman — D.A. Davidson & Co. — Analyst

Okay. Okay, appreciate that. And then the Wildcat sale within the Proppants segment, it looks like that helped profitability — profit this quarter. Do you have the value of that sale just so we can kind of get an apples-to-apples comparison?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, Brent, I would tell you, we sold Wildcat at the very end of the quarter. So, that wasn’t the improvement in profitability. Frankly, the improvement there was January and February volumes were very strong in that business, really lot of a catch up from really slow times in the fall and early winter. So — and like I said earlier, the business has changed again in March and into April as oil prices fell dramatically. So the Wildcat sale proceeds were very minor. As we said, we wanted to exit and think about alternatives for the business and sale made the most sense there but that wasn’t driving the performance during the quarter.

Brent Thielman — D.A. Davidson & Co. — Analyst

Great. I guess my last question just on the separation process, timing, to the extent you guys can talk about this, but I know a lot going on right now in the market. But can you talk about what you guys are going to be looking for to kind of advance that process just from everything you’ve already done to-date?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, I think Brent, as Michael pointed out, and as we’ve said before, we’re in an uncertain time right now and the visibility over the next 12 to 18 months is not where you — you want to have confidence in that. And while certainly our volumes have remained very strong here in April and early May, we want to have a high degree of confidence in our markets long term, and the capital markets getting to where they’re trading in a regular way manner. So until those things can happen and we can put these businesses in the right place, because what we also would recognize in the immediate term, these businesses do support each other and they are stronger together during uncertain times. And so until you have some certainty there the best course of action is to keep them together.

Brent Thielman — D.A. Davidson & Co. — Analyst

Okay, appreciate it. Thank you, guys.

Operator

Thank you. Our next question comes from Anthony Pettinari with Citi. Your line is open.

Anthony Pettinari — Citi Research — Analyst

Hi, good morning. Just following up on your hey, just following up on the comments on cement demand, understanding that the heartland markets have held up better than other parts of the country. Just wondering if you’ve seen any cancellations or pushbacks of public projects that could impact you and just wondering if you had any kind of general thoughts on the health of budgets in the states you operate given obviously reduced gas tax revenues?

Michael R. Haack — President and Chief Executive Officer

Yes, it’s a good question and time [Indecipherable] tell on that. Right now our demand has been strong. Do we hear of a project here or there that may be delayed? Yes. Has it been impactful to us at this time? No. And really, it’s just too hard to predict what’s going to happen on that side. What I’d like to focus on more is what we’re experiencing right now. And right now, demand is strong in the markets. We don’t see that being impacted in the near-term and we’ll see what happens over the longer term, if anything.

Anthony Pettinari — Citi Research — Analyst

Okay, that’s helpful. And then maybe just shifting to the Light side, I mean we’ve seen this sharp spike in OCC costs with some collection. It looks like it’s being discontinued or delayed, maybe that’s come back a little bit in the last few weeks. Just wondering if you had any thoughts on spike in recycled fiber costs and your strategy for passing those through to the extent that you’re seeing it?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yes. So you’re right, we’ve seen OCC prices go up here in April and May. I think a lot of that stems from, as the economy shut down, the generation of OCC has really declined. So as we restart the economy, you’d expect to see that generation improve and likely moderate pricing going forward. So it was just such a snap reaction to what we’ve been dealing with. You’ve also seen containerboard mills closing, etc, so that should lessen some of the pressure on OCC. And as you may recall, we have the ability within our paper mill to pass through those incremental costs. It’s generally on a quarter lag the way the pricing mechanism works, but we do have the ability on the paper side to pass those through. On the Wallboard side that would be something we would start to feel next quarter because again, it’s a quarterly lag so we aren’t dealing with that this quarter but as we look out into September and December, we could see those higher OCC prices, but they may also moderate. So it’s something we’ll be watching closely as things develop over the next weeks and months.

Anthony Pettinari — Citi Research — Analyst

Okay, that’s helpful. I’ll turn it over.

Operator

Thank you. Our next question comes from Jerry Revich with Goldman Sachs. Your line is open.

Jerry Revich — Goldman Sachs — Analyst

Yes, hi, good morning everyone. Craig, in the past you folks have been able to take advantage of the strong balance sheet at a time when others were deleveraging. I’m wondering if you could talk about what your M&A pipeline looks like now and overall your willingness if an opportunity comes up to deploy capital given all the uncertainty that we obviously spoke about on the call?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Jerry, I would highlight, we just completed the acquisition of a $665 million cement plant. And so that’s something that we are in the process of integrating and working through. And I think as Michael and I highlighted, our focus is on improving our balance sheet and continuing to delever from here. We have some unique opportunities because of Eagle. So look, the focus is certainly on the balance sheet and the health of the company. To your point, maybe there are some M&A opportunities that come out of this; way too early to project that. And again, there’s lot of requirements that need to be fit there in terms of value involved in the asset. But it’s something we’ll keep our eyes open, but we are very focused on deleveraging right now.

Jerry Revich — Goldman Sachs — Analyst

And as you folks mentioned earlier on the call, your Cement footprint is substantially larger in this cycle than it was a decade ago and there has been other consolidation plays. How do you expect Cement pricing to play out in the current recession compared to the last recession? Any observations that you would make particularly in your markets?

Michael R. Haack — President and Chief Executive Officer

When I look at our network, I’m really happy where we sit and where our acquisitions have been. We’re a heartland U.S. cement supplier and that has served us well during this time and it serves us well in the past. I look at the volatility of markets and everything else. We’re in a more stable footprint away from the water in many cases. So, the increased capacity I just see as a benefit for us. We could share and maximize some of our synergies across and maximize the output of some of our lower cost plants versus higher cost plants that went active. Right now demand has been stable across the majority of our markets. I mean it’s — so, we’re prepared if something were to happen and to respond globally to those. But right now we’re very comfortable where we stand. We do recognize that there is uncertainty in the market and we’re prepared for that uncertainty. But right now we just don’t see it with where our network is located.

Jerry Revich — Goldman Sachs — Analyst

And in terms of the industry’s focus on pushing pricing in June, given the uncertainty, can you talk about what kind of feedback you’re getting from your customers on that? Obviously, it’s nice that we got the pushback from a customer standpoint from April to June. But what are those conversations like with customers considering the uncertain environment?

Michael R. Haack — President and Chief Executive Officer

Yeah, I mean it’s a good question. The market is going to determine what the price is. We’re in constant conversation with our customers and they’ll be the first to know the timing and the implementation of that and we got to see what the market is going to determine that price. So we’ll have more color for that in the coming months with that. But our plan is as we stated with the June timeframe.

Jerry Revich — Goldman Sachs — Analyst

Okay. And lastly, when you folks have made Cement acquisitions in the past there has been I think two-way street in terms of application of best practices. Can you talk about based on the short time that you’ve owned Kosmos what you see as the opportunity set of implementing Eagle’s practices and vice versa, any opportunities for network benefits or otherwise that you’d call out?

Michael R. Haack — President and Chief Executive Officer

Sure. And you know, first, I’ll start off with the people and the talent we acquired. We’re very happy with the plant itself, the people. As you said, we’ve only owned it a couple of months. So that’s more to do on some of the synergy and quantification and realization of all those synergies. But, first and foremost, the people that came with the transaction we’re extremely happy with. We were able to as stated earlier, put in some top-level management from the Eagle side to get some of our culture and also learn from the plant side that we bought on what they have for best practices and everything else. This fits directly into our network and we plan on exploring those opportunities of integrating across that network. It’s a wonderful plant.

It’s the second most efficient plant in the U.S. from some of the reports we’re seeing. And we know we have opportunities around their mining side and that we’re going to be exploring those opportunities over this coming timeframe. So there is, just overall, when I look at the transaction I’m extremely happy about that transaction, having that integrated into our network. It provides just even more and more stability to the plant and support across with Fairborn and Illinois Cement and Sugar Creek, all being — able to connect to that plant and everything. So over the coming quarters, you’ll see a lot more conversation about that from us, but we’ve only owned it since the beginning of March. So we just need a little time to get in there and dig in there and as you know, travel has been a little more restrictive to get in there and see some of these items.

Jerry Revich — Goldman Sachs — Analyst

Yeah, it would be a long drive. Thank you.

Operator

Thank you. Our next question comes from Stanley Elliott with Stifel. Your line is open.

Jerry Revich — Goldman Sachs — Analyst

Hey, good morning everybody. Thank you all for taking the question. Quick question, when you see kind of the big drop in the economies and being hit, typically that’s the residential market that get hit first, right? And we are starting to see some of the data points looking like maybe the residential market is coming off the bottom a touch. Are you all seeing that in conversations with customers? I’d be curious to see how that bucket’s been breaking down for you?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Stanley. You’re going to see a lot of interesting macroeconomic data. We’ve already seen it. There’s going to be lots of — a lot more data to come. And this has been such a quick reaction. And so you’re going to access to look through and see this data over a number of weeks and months before you can really start to put a trend to it. Look, anecdotally I think we hear the same that things have started to kind of bottom out and improve a little bit. You’re starting to see these mini states reopen their economies. People are going back to doing some of their normal routine activities. So look, you still have very low interest rates. That is an attractive thing. Longer term, fundamentally, I do think single-family construction will benefit from this environment where you want a social distance. And so there maybe even some immediate reaction but longer term, I actually do think it’s probably good for both of the businesses.

Stanley Elliott — Stifel Nicolaus — Analyst

And the last thing for me, just a point of clarification, you guys talked about capex being down at least 50%. I’m assuming that that is including the capital or maintenance requirements for Kosmos within those — within that numbers?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, absolutely and I think Michael pointed out, the Kosmos facility is a very modern facility. It’s been maintained well. We see some opportunities for improvement, but we certainly baked that into our estimates for capital spending in the next year. And as we’ve talked in the past our sustaining capital needs are not significantly on an annual basis. The real investment in these businesses is upfront. The sustaining annual needs is not significant.

Stanley Elliott — Stifel Nicolaus — Analyst

Perfect, thanks for the time.

Operator

Thank you. Our next question comes from Phil Ng with Jefferies. Your line is open.

Philip Ng — Jefferies — Analyst

Hey guys, good morning. Congrats on a strong quarter. Given the continuous manufacturing process of cement, how are you going to kind of manage the cost profile of that business in a downturn? And is there a good way to think about the incrementals from a volume perspective?

Michael R. Haack — President and Chief Executive Officer

Yeah, when we look at it, though I want to get back to kind of the current with it as you know our demand in the market has been strong. We do have several, but we are planning if something were to happen, how we respond to your question. It is a continuous manufacturing process. We’ve done several different capital investments over the past and that’s what’s enabled us some to having run in less capital in this year when we want to pull the lever back and kind of reign in the cash spent. But in some of those capital investments I’ve been really looking at the grinding capacity versus the clinker production capacity. We have several different facilities where we have storage of clinker that we can do, so we can continue to run and then have extra grinding capacity to take that clinker and the future with it. So that’s an example of one thing we may look at if the market were to turn. And there is multiple others in several locations. We have multiple kiln lines that we run instead of one kiln line we have set two kiln lines. Right now we have those as Alternatives. But right now, we’re just not seeing any kind of demand profile filed that’s enacting any of that.

Philip Ng — Jefferies — Analyst

Got it. That’s helpful. And there’s obviously been a lot of noise and press about some these DOT’s financially being underwater. Any perspective and how you think of your key states from a funding perspective, any state that are in better shape like a Texas and any markets that are a little weaker for you?

Michael R. Haack — President and Chief Executive Officer

As said, in this near-term right now demand has been stable across all locations. There are some different micro impacts with items like, for example, gold prices are up, so we provide into that market with it, but overall there is not a market I’d highlight out as significantly weak. We are watching some of the Oklahoma market with some of the oil and gas movement that’s happened in it. But that’s such a small percentage of our sales anymore that it’s not significant. I think it’s less than 5% of what we sell as a product on the Cement side anymore. So it’s just not a meaningful number anymore, but we are watching that market just to see what happens. But overall, we’ve been pretty consistent. We’re in a heartland area that’s been pretty stable.

Philip Ng — Jefferies — Analyst

Okay, great. And just one last one for me. Appreciate once again your business is pretty stable across the board, whether it’s your Light or Heavy Materials side of things. You are bringing on some capacity for Paperboard. Can you remind us how much of that business is locked up by long-term commitment? And it sounds like, just from a cost standpoint, you’re seeing some savings, right? Thanks a lot.

Michael R. Haack — President and Chief Executive Officer

Yeah. So I’ll do a quick comment and then I’ll turn it over to Craig to — as a follow-up on it. What we did with that project is — as I mentioned in the first slide is, that project was to expand the paper mill and give us more capacity. You may notice in there that we were able to implement all the equipment and we are seeing some additional capacity within the early, early stages of running the equipment. So that equipment let us speed up the machine a little bit. We’ve been able to run a little bit faster. And that’s translating into some tons. We also do have a secondary part of that that’s going to be happening that we need some [Indecipherable] already installed, but we need a person from a company from overseas to come over and help us with the final — of that machine and everything. And that will be in the summer when the travel bans open and everything but right now we are seeing improved production out there. I think we’ve publicly stated that it was going to be a 70-plus-thousand ton addition and we are seeing some of that currently today and we’ll see more as the summer comes. And we’re able to finally get that equipment up and running to full capacity.

Operator

Thank you. And our next question comes from Josh Wilson with Raymond James. Your line is open.

Josh Wilson — Raymond James — Analyst

Thanks. Good morning, Mike, Craig, and Bob. Hope you and your families are well.

Michael R. Haack — President and Chief Executive Officer

You too.

Josh Wilson — Raymond James — Analyst

First, a housekeeping item; could you quantify what the sales contribution was of the ready-mix and Aggregates acquisition in the quarter?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

On the revenue side?

Josh Wilson — Raymond James — Analyst

Yes.

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, it was a pretty minimal number. I think for the entire quarter when you look at both Kosmos and the Concrete acquisitions it was around $14 million for the quarter and it was split almost evenly between the two.

Josh Wilson — Raymond James — Analyst

Got it. And then regarding the frac sand business, good to see some profits there but could you walk us through what some of the building blocks were given that volume was still down year-on-year in terms of contribution of cost cuts and maybe what the fixed cost outlook is for that business going forward?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah, Josh, obviously over the last 12, 18 months we’ve taken some significant impairment charges in that business where we’ve written it down to next to nothing. And so, as you see in the earnings release, the depreciation and amortization has gone down considerably. And so, then as I mentioned, we actually saw while it may be down year-over-year we did see volume improve in January and February and a little bit of volume on a fixed cost business like this goes a long way. So that’s what was driving the earnings improvement during the quarter. But as also highlighted earlier we obviously have seen another change in that business in margin and into April.

Josh Wilson — Raymond James — Analyst

And then the last one for me, in terms of the organic cement volume any end markets or states that particularly contributed to the strong growth and how those trends were continuing?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

No, look, I think as we saw during the quarter, and I’d even highlight for you if you go back to the September quarter, the December quarter we have seen really good volume improvement, and it was really across the entire network that we saw and the fourth quarter was no different. We really saw very good momentum as we were coming out of the winter. Inventories are low but it was very broad based.

Josh Wilson — Raymond James — Analyst

Okay. Good luck with the next quarter.

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Thanks.

Operator

Thank you. Our next question comes from Robert Muir with Berenberg. Your line is open.

Robert Muir — Berenberg — Analyst

Thanks very much. Thanks for taking the question. Firstly, can you, is there any update on the $120 million tax benefit associated with the Kosmos acquisition that you talked about earlier this year? I think I saw the federal income tax receivable in the balance sheet move quite a bit and I just wondered if there was any color around that? Thank you.

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yes, that is absolutely. So when we acquired the Kosmos Cement plant we were able to accelerate the depreciation for tax purposes for — 65% of the purchase price was immediately expensed. And so we went from a taxable income position to a net operating loss. Uniquely because of the CARES Act we are able to carry that backwards and recover previously paid taxes and so that certainly is what’s driving that income tax receivable. What I’d also highlight for you we mentioned in the press release what that also meant was we could carry back that that NOL to years that we were paying taxes at 35% versus the current rate of 21%. That generated another $30-plus-million of receivable and the benefit during this quarter. So we’ve actually filed that tax return and have — and are seeking a refund and that should be coming over the next couple of months.

Robert Muir — Berenberg — Analyst

Great. And then the second question I had was just on the Chicago market. I mean, notwithstanding obviously the effects from the virus, but I think that market — I think the Illinois shipway is going to be closed this year still for repair. How do you think that market is likely to evolve? Are you seeing any changes in how it’s being supplied by other players that normally access it maybe from the Mississippi, etc? Are you seeing any changes in the supply?

Michael R. Haack — President and Chief Executive Officer

We’re well-positioned in that market. We have our Illinois Cement. We also have our Skyway Slag grinding facility there in that market. We do know the waterways are going to be shut down for some repairs during the summer. We’ve been in conversation with our customers that will impact and everything and we’re comfortable with supplying them appropriately. Haven’t seen anything notable on market shift changes or anything like that. That plant we run pretty much at capacity and we run that plant to satisfy our customers and everything. But I don’t see anything significant right at this time.

Robert Muir — Berenberg — Analyst

Okay, great. And then the final question was just — I think you mentioned Kosmos was the second most efficient plant. Is that in your portfolio or is that in the U.S. as a whole? And then, just when I look at the 8-K that you put out, I think EBITDA margin looks to be about 28% or that could be wrong. Could you clarify that for me, please?

Michael R. Haack — President and Chief Executive Officer

Yeah. When I said efficiently, we are looking at the thermal efficiency of that plant. So when we look at the plants, we look at them thermally efficient. I missed the second part.

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yeah. I think they were related. So on the 8-K, those results were as CEMEX ran them and I think it was 2018, in calendar 2019 is what’s included in the 8-K.

Robert Muir — Berenberg — Analyst

Okay, that’s great. Okay, thanks very much. Thanks for the questions.

Operator

Thank you. And our next question comes from Keith Hughes with SunTrust. Your line is open.

Keith Hughes — Suntrust Robinson Humphrey — Analyst

Thank you. You said a lot of positive things; more positive for April and May, more positive I’ve heard on virtually any conference call this earnings season. Just kind of bottom line, are your volumes up year-over-year in April and May or down slightly or can you just give us any sort of gauge on what this looks like?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yes, Keith. I think what we’re trying to communicate is that we really haven’t seen much of a change in the business and not trying to give any forward guidance on volumes being up or down. Just following — you always have year-over-year comparisons as well to consider but volumes have remained strong across the businesses and that includes Wallboard and Cement here in April and May. And look, we fully understand what’s going on in the economy and there is changes. We just haven’t seen it impact us yet.

Keith Hughes — Suntrust Robinson Humphrey — Analyst

Okay. And kind of on that note, particularly in Wallboard do you expect to run kind of normal production schedules till the time being unless that demand pattern changes?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Look, we absolutely will run the facilities to meet the demand levels that are in front of us and that’s kind of what you always do. You don’t really have the ability to store inventory of Wallboard. It’ll deteriorate over time. You can’t store it outside. And so, you’re always managing supply with demand, that’s pretty typical for us.

Keith Hughes — Suntrust Robinson Humphrey — Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from Paul Roger with Exane BNP Paribas. Your line is open.

Robert Whitworth — Exane BNP Paribas — Analyst

Hi, this is actually Robert Whitworth on for Paul Roger. Thanks for taking my questions. I just wanted to ask when you do your scenario planning are there any situations where you would have the liquidity concerns? Say if there is a U or an L-shaped recovery, I mean, are you still confident about the state of the balance sheet?

Craig Kesler — Executive Vice President, Finance and Administration and Chief Financial Officer

Yes. We’ve made some modifications to the existing facilities here in April and gave us some extension on the maturity dates among other things. And as I mentioned earlier, we had, again a sale of the non-strategic asset that wasn’t driven by the current situation, but it was certainly timely. So that was $93.5 million. We have the NOL refund that we have filed for and should receive in the general near term. What we found in the last recession was what we know about these assets and they are significant cash flow generators. Our capital spending needs as we said are not significant. Roughly half of what our depreciation and amortization is on an annual basis at this point. So these assets do generate a lot of cash. Wallboard plans can be moderated very quickly to the extent necessary. And so we feel good about where we are from a liquidity position at this point and if need be we can continue to trim further.

Robert Whitworth — Exane BNP Paribas — Analyst

Brilliant, thank you. And just as a follow-up, obviously, you’ve already touched on sort of falling state infrastructure spending already. I’d just like to know what your expectation is around the stimulus from the Federal government this year — sort of what your expectations are post the FAST Act expiring in September? Thank you.

Michael R. Haack — President and Chief Executive Officer

Yeah. Any kind of stimulus that comes — it’s going to take — it’s going to get in the pipeline, it’s going to take some time to materialize into anything. So as we look at it, we’re looking at what’s in front of us right now. And then we understand some of the uncertainties in the term or later term of the year. But right now, I don’t see any stimulus hitting us in this short timeframe with it. It would be a mid or longer term impact to it and it’s going to take time to work through the system.

Robert Whitworth — Exane BNP Paribas — Analyst

Okay, thank you.

Operator

Thank you. And we have a question from Adrian Huerta with J.P. Morgan. Your line is open.

Adrian Huerta — J.P. Morgan — Analyst

Thank you. Hi, good morning everyone. You mentioned the strong volumes that we have seen already over the last three quarters and then you said also that it was kind of across the market. Do you think you gained market share during these three quarters? And can we say that comps will start getting tougher now in the coming quarters on a year-on-year basis? I’m talking about cement volumes.

Michael R. Haack — President and Chief Executive Officer

The market share question, we’ve been pretty consistent on our market share for quite a while now on both sides of our business. So I don’t see gaining market share with it. Really, it’s just more on the markets we participate in and the customer base we have on it. As said before, I’m really focused more on — we have plans for things happen in the future but we’re focused on running the business as it stands today with it. And so we have run cases where what we’d do if there is a downsize potential in the future. But right now we’re just seeing a stable market. We’re going to run our plans as the demand dictates at this time.

Adrian Huerta — J.P. Morgan — Analyst

Excellent. Thank you.

Operator

Thank you. And that’s all the questions we have for today. I’d like to turn the call back for management for any closing remarks.

Michael R. Haack — President and Chief Executive Officer

The only thing I want to say is thank you very much for calling into our conference call and we will be talking to you again in the summer. Thank you very much.

Operator

[Operator Closing Remarks]