Texas Industries Cement Sales Soft

By Greg Sushinsky | September 28, 2010 AAA

Cement and aggregate maker Texas Industries (NYSE:TXI) recorded a loss in its recently reported first-quarter results, which included a large after-tax charge. Net sales fell, compared to last year's same quarter, showing the still-weak demand for the company's construction products.

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Revenue, Earnings Off
Overall revenue for the quarter was $172 million, compared with $184 million last year's first quarter. Sales were down in all three major segments, cement, aggregate and consumer sales. Costs throughout were up slightly. The company conducts 70% of its cement sales in the Texas market, and cited the still soft construction markets in both Texas and California for weaker sales.

Net income showed a net loss of $23.7 million, or 85 cents a share, with an after-tax charge of $18 million, or 65 cents included. Excluding this charge, the net loss was $5.7 million or 20 cents per share, compared to a profit of $1.7 million, or 6 cents a share in the first quarter a year ago.

Infrastructure Activity Still Weak
With the potential of a $50 billion infrastructure boost in spending on the horizon, this should benefit some of the cement and aggregate manufacturers such as Texas Industries. Also in line for the extra work would be aggregate maker Martin Marietta (NYSE:MLM), Vulcan Materials (NYSE:VMC) and Eagle Industries (NYSE:EXP). While all these companies could benefit, all are not performing equally. Texas Industries has had a rocky couple of years with lots of red ink. Martin Marietta, on the other hand, though it's had its earnings dampened, has still been profitable throughout the terrible construction downturn. (To learn more, see Build Your Portfolio With Infrastructure Investments.)

Past Problems at Texas Industries
One can argue Martin Marietta is more diversified and able to weather the downturn, but there have been concerns from major shareholders in the last few years about the operational problems at Texas Industries, specifically about the wasting of capital resources. Still, Longleaf Partners, a large shareholder in Texas Industries, has added to its stake and so it's reasonable to suggest it sees value there.

Industry Prognosis
With the sluggishness of the economy, the construction industry decline will take some time to reverse. International construction behemoth Cemex (NYSE:CX), for example, after a couple of years of meager profits, has fallen back into the red so far this year. While much of the cement and aggregate infrastructure trade is done regionally, global firms such as Cemex are also feeling the pinch. Indeed, recently Cemex mentioned that the U.S. recovery has been slower than anticipated.

The Bottom LineTexas Industries Stock
If you're bold like Longleaf Partners and you have an exceptionally long time horizon, you might want to investigate Texas Industries as a possible undervalued stock. If you feel the recovery for the construction industry and the cement makers is still a longer ways off, you might want to defer and just monitor things until they actually prove to be better. That means waiting for better sales and earnings.

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