Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Thomas Lesley Vines - Chief Accounting Officer, Vice President, Treasurer and Corporate Controller

Melvin G. Brekhus - Chief Executive Officer, President and Director

James B. Rogers - Chief Operating Officer and Vice President

Kenneth R. Allen - Chief Financial Officer and Vice President of Finance

Analysts

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Kathryn I. Thompson - Thompson Research Group, LLC

John F. Kasprzak - BB&T Capital Markets, Research Division

Garik S. Shmois - Longbow Research LLC

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Kevin Money

Michael Betts - Jefferies & Company, Inc., Research Division

Glenn Wortman - Sidoti & Company, LLC

James Barrett - CL King & Associates, Inc., Research Division

Taryn Kuida - D.A. Davidson & Co., Research Division

Texas Industries (TXI) Q3 2013 Earnings Call March 28, 2013 11:00 AM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the TXI Third Quarter Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mr. Les Vines. Please go ahead, sir.

Thomas Lesley Vines

Thank you, Bruno, and good morning, everybody. Thank you again for joining us for our third quarter conference call and webcast. We certainly appreciate your time and interest. On the call with me today are President and CEO, Mel Brekhus; CFO, Ken Allen; and Chief Operating Officer, Jamie Rogers. We will follow the same format as in previous calls, with management providing comments for the quarter and then follow with your Q&A. [Operator Instructions]

Before turning things over to Mel, I'd like to remind you that we are hosting an Investor Day on April 18 in Austin. I think today is the RSVP date, in case you haven't already let us know of your intent to attend. And if you have any questions about the event, you can contact Linda English. Her number is (972) 647-6732.

Also, I need to remind you that certain statements contained in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date hereof, and we assume no obligation to publicly update such statements. Such statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

Potential risks and uncertainties include, but are not limited to, the impact of competitive pressures and changing economic and financial conditions on our business; the cyclical and seasonal nature of our business; the level of construction activity in our markets; abnormal periods of inclement weather; unexpected periods of equipment downtime; unexpected operational difficulties; changes in the cost of raw materials, fuel and energy; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; delays in announced capacity expansions; ongoing volatility and uncertainty in the capital or credit markets; the impact of environmental laws, regulations and claims and changes in governmental and public policy; and the risks and uncertainties described in our reports on Forms 10-K, 10-Q and 8-K.

And with that, I'll turn it over to you, Mel.

Melvin G. Brekhus

Okay. Thanks, Les, and good morning, everyone. There are 3 things that I want to make sure you take away from the call today. They are: number one, all of our markets are improving; number two, all of our markets still have a lot of upside before getting back to their historic averages and peaks; and number three, we are positioned better than ever to take advantage of the potential in all of these markets.

I've told you before on a number of occasions that jobs are the key. A healthy employment environment spurs population growth and new home construction, creates the need for supporting infrastructure and commercial construction and helps support the means to fund the public portions of these projects. When you look at the nation's top job growth markets in the United States, 3 of the top 9 metropolitan markets are in our Texas wheelhouse: Houston, Dallas-Fort Worth and Austin. We're #1, 3 and 9 in 2012. But it's just not our Texas markets that are creating jobs. Los Angeles, San Francisco, San Jose and San Diego were numbers 2, 5, 13 and 15, respectively.

Large markets with strong job growth drive a lot of construction activity, and we're in the best markets with this -- in this regard. Nationally, housing starts jumped to a 4-year high late in 2012, and both Texas and California were up approximately 30% compared to 2011. The average forecasted national housing starts for 2013 is 1 million starts, a far cry from the 1.5 million annual average starts going all the way back to 1959. This is why I believe there is a lot more upside to come.

Going back to 2008, we have significantly increased our ability to benefit from the improved levels of construction in our markets. Recall that we built our cement plant in California and brought it online in 2008 as the nation was heading into this severe recession. We added 1 billion tons of capacity and dramatically improved our cost profile in that market, though we have yet to fully realize the benefits.

In Texas, we have strategically realigned our assets to create a stronger vertically integrated position in our markets. We acquired a leading ready-mix profile in Austin, Texas and the surrounding area that now works in tandem with our cement and aggregate operations in that market. And last week, we closed on a transaction where we acquired 42 ready-mix plants throughout the attractive east Texas markets in exchange for our expanded shale and clay operations. These operations will be served by both of our cement plants in Texas. Finally, later this spring, we will complete the commissioning of our new cement kiln in central Texas and add 1.4 million tons of low-cap cost capacity into this strong and growing market.

Before turning it over to Jamie, I will reiterate that our markets are better. We expect a lot more improvement to come, and we are well positioned to benefit from that improvement. We aren't resting, and we are singularly focused on doing all we can to realize our potential as quickly as possible. Jamie?

James B. Rogers

Thank you, Mel. And as you mentioned, Texas has been leading the way in job creation as all major markets in the state reached and exceeded prerecession employment levels during 2012. The job growth in Texas is creating a vastly improved housing market. Values are up, foreclosures are down, permits are up, and the supply of inventory is tight. Overall, the state is close to a 4-month supply of inventory available for sale, with all of the major markets at or below 4 months. In fact, a number of attractive submarkets are in a 2-month supply. This explains why 4 out of the top 8 markets in 2012, ranked by single-family starts, are in Texas, with Houston and Dallas-Fort Worth being 1 and 2. In Dallas-Fort Worth, single-family housing permits in 2012 were approximately 13,000, well below the 2004 peak of 32,000 permits.

Leasing rates for both office and industrial space continue to improve in the DFW metroplex, leading to new projects in both sectors. Industrial vacancies are below 8%, and while overall vacancy rates are higher than one would like, large blocks of contiguous space in desirable markets are scarce. The large road projects in DFW we previously discussed continue to proceed, and the need for new projects continues to grow. The North Central Texas Council of Governments 2035 mobility projects forecast a need for strategic infrastructure investments to be just under $49 billion.

Single-family housing permits issued in Houston during 2012 totaled around 25,000, about 50% of the 2005 peak. The Houston area market has been ahead of the north Texas market, and thus, the office and industrial construction activity has been stronger. Currently, there's 12 million square feet of office space under construction in this market, with an additional 6 million square feet planned. As you would expect, there is significant pressure on the Houston area infrastructure, and there are a large number of large projects in the works to help alleviate this pressure.

Austin has a similar story. Single-family permits issued in 2012 were 8,000 compared to almost 18,000 at the peak. And while I don't have all of the square footage details, there are 44 office and industrial projects under construction or planned in the lower part of downtown Austin alone. California single-family permits posted a modest uptick in 2012 but remained less than 30,000. This is a level that is approximately 20% of the prior peak and approximately 30% of the annual average of the past 32 years. Again, this illustrates the tremendous upside potential of our markets that Mel alluded to.

I'm very excited about how we are positioned in our markets to take advantage of the recovery. Increasing shipments and corresponding production levels allow us to spread our fixed costs with more units and make the incremental volumes more profitable. Our strategic redeployment of capital in Texas will also increase our ability to benefit from this recovery. In addition to improving our vertical integration footprint, our recently announced transaction involves our disposition of an attractive but stable earnings stream, with limited recovery upside and the acquisition of operations that do have a significant amount of recovery upside potential.

While this was a good strategic transaction for us, it was not easy to part ways with many long-term colleagues and friends in the expanded shale and clay operations. They've built a great business, and I'm very appreciative of their many contributions to TXI. I'm also excited to welcome 350 new teammates at TXI. They've also built a fantastic business throughout east Texas and southern Arkansas and will be a great addition going forward.

As Mel mentioned, we are in the final stages of commissioning of our new 1.4 million-ton kiln in central Texas. The issues we've encountered have been similar to those we have encountered in other commissioning efforts. Our team has worked hard on this project, and I'm very proud of their efforts and results. Given the outlook for this market, the timing for the additional capacity appears to be very good. Recall that we intend to take down the current kiln for a year or so to upgrade some of its environmental controls and, thus, the initial additional capacity is only 500,000 tons, short term.

Overall, I feel very good about the hard work we've done to position TXI for this recovery. It is gratifying to begin seeing some of that reflected in our results, and I'm even more excited about the rise going forward. And with that, I'll hand it off to Ken.

Kenneth R. Allen

Thanks, Jamie, and good morning. I'll first highlight several items from the quarter and then move on into the several comments from the fourth quarter.

Consolidated sales of $141 million were up 16% from last year's third quarter. On an apples-to-apples basis, after removing the roughly $4 million in revenue from our package operations that were sold last spring, the $141 million in this year's sales was actually up about 20%. Our Texas cement operations shipped 645,000 tons in the quarter, and this is up 27% from a year ago. California cement shipments of 288,000 tons were up 22%. Aggregate shipments were up 28%, and ready-mix shipments increased 7%. Now while ready-mix shipment growth didn't match the growth rates for the other 2 product lines, realized prices in ready-mix were up 12%. Cement prices in Texas increased 2%, while California realized pricing declined 3% due to product and customer mix. As you look at individual markets in the California region, you really don't see any price declines. This is a mix issue. Aggregate pricing increased 2% as well.

All said, we are continuing to see positive trends in shipments and prices leading to double-digit increases in consolidated revenues. And this $20 million-plus increase in sales also resulted in $14 million of increase in gross profit. Now when you adjust for the outage cost last year in cement and the impact of no longer having the package products business, incremental margins on increased revenues were about 50%, and this is as it should be, given the fixed cost nature of our business and the work we've done to reduce our cost structure.

SG&A expense included variable stock-based compensation charges of $1.4 million in the quarter and $1.7 million in the same quarter last year. This year's quarter also included a $1.2 million insurance charge related to a prior event in ready-mix. Now when you take these 3 items out, SG&A expense as a percent of sales declined from 12.8% last year to 10.3% this year, and on a total dollar basis, SG&A expense after the 3 adjustments declined by $1.1 million. One small note while we're discussing SG&A expense, this third quarter will be the last quarter that includes any material variable stock-based compensation expense. We made some adjustments to contracts in the middle of the third quarter that removed this source of variability and distraction.

Our efforts over the last 1.5 years to improve the company's long-term cost structure put us in a position of moving forward into fiscal year 2014 with the expectation that gross margins will be at least 15% and SG&A expense will be no more than 8%. Given trends and conditions that are currently in place, we'd also expect to do better than those numbers.

TXI's cash balance at the end of February was $32 million. The asset swap in March added to our cash. And recall that we have the ability to borrow about $100 million under our credit line without the constraint of maintenance covenants. So at the end of February, total liquidity for the company was in excess of $130 million and growing.

As we look forward now, recall that fourth quarter shipments are usually the strongest of the fiscal year, and we see no reason to question that pattern, given normal weather. We also expect to see overall pricing continue its positive trend. In cement, clinker production should be up over last year's production trash shipments in the fourth quarter. Last year's quarter really didn't have any unusual cement plant maintenance expense of note, and we don't think we will have much in the current quarter either.

We said in the past that we expect the new kiln in central Texas will be fully commissioned this quarter, and we continue to hold to that schedule. Once the plant is declared fully commissioned, depreciation associated with the project will begin flowing through the income statement at a rate of approximately $18 million to $19 million per year. We will also stop capitalizing interest once commissioning has ended, and when that happens, interest expense will increase to an annual run rate of around $69 million.

The fourth quarter will include about 2 months of results for the ready-mix operations we acquired late in March in east Texas. On the other hand, the quarter will not include 2 months of expanded shale and clay results, which were already reflected as discontinued operations. The difference in profit between the 2 product results will not be large enough to move the needle for just the 2 months in the quarter.

With regard to capital spending, non-expansion capital for the 9 months to date equal $20 million. We still expect capital investment for this category will be in the neighborhood of $25 million to $30 million for the entire fiscal year. So at this point, the major capital investments made to upgrade and expand all 3 of TXI's cement facilities are now, for all practical purposes, behind us. We've also reallocated capital to strengthen and expand our vertical integration footprint in Texas, the largest and in our opinion, the best construction region in the nation.

As a result, TXI's earnings capacity is well above that of the previous peak. We believe that annual earnings capacity in a normal market for the company is approximately $400 million of EBITDA. This is the number we communicated prior to the downturn, and it continues to be our goal and expectation. After all the excellent work that our employees have accomplished to get us to this point, rest assured that, as Mel and Jamie have already related, we'll put as much energy and effort into obtaining this value for shareholders in the future.

Les, with those comments, we'll turn things over to you

Thomas Lesley Vines

Great. Bruno, I think we're ready for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Ted Grace with Susquehanna.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Maybe starting with that last comment that you made on $400 million of EBITDA, just could you give us some of the key building blocks or assumptions that underlie that number?

Kenneth R. Allen

Ted, this is Ken. I'd be happy to. 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% to 35% EBIT margins. Given those margins and given the 7 million to 7.5 million tons of cement capacity that we'll eventually be able to ship 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 Financial Group, LLLP, Research Division

And just -- I realize this is probably the toughest question you're 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?

Kenneth R. Allen

No, no, good question, good question. Obviously, we would expect that to occur quicker in the Texas market. As a matter of fact, as you look at things in the Texas market, we're probably pretty close to being there over the next year or so when you think of total supply into the market today. The California region market balance is 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'll tell you, in the meantime, with our concentration of assets being in the Texas region and the opportunity to then prove EBITDA in that region, in the near term, there's a lot of value being created just in Texas and then value will be created in California as things begin to pick up, but it'll take a little longer in California.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

And so just maybe on the pricing front, if we go back to kind of the prior high, where pricing on cement anyway was in the mid-90s and now we're looking at something that's in the 70s, how would you encourage us to think about the path between here and getting back to -- the timetable of the path to getting back to something in the high 80s, low 90s?

Kenneth R. Allen

Again, a good question. 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've seen in this past downturn and really in the past 20 years in the Texas -- in the U.S. cement market in terms of improved market structure, where we've seen imports being fairly rational, 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's 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 good equipment.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Okay. The last thing I wanted to ask, because I know you want to get on to others, if we just think about TXI's competitive positioning following the Hunter commissioning, in terms of where you think you'll be on the cost curve vis-à-vis your competitors, could you just help us understand, do you think you're going to be in line with the market, better positioned from a, call it a unit economics basis or something else?

James B. Rogers

Ted, this is Jamie. I would expect that to be on the better end or upper end from a competitive standpoint. We've got a great footprint. We have the newest fleet in the industry, with Hunter -- with our Hunter plant coming online and Midlothian being among the newer plants in Texas, as well as California. So we've had -- we built 3 new cement plants in roughly 10 years. I feel extremely good about our position.

Operator

The next question comes from Kathryn Thompson with Thompson Research Group.

Kathryn I. Thompson - Thompson Research Group, LLC

First question is on the Hunter plant commissioning, just a little more color on how it's running as you're getting to the process of fully commissioning it. And you also will be shutting down about 900,000 from a plant as Hunter becomes fully commissioned. Maybe discuss just more the mechanics of the timing, will there be additional cost as you ramp up and ramp down capacity, and if there's anything that we should take into account in this quarter and the next quarter when taking account of the Hunter dynamic.

James B. Rogers

Kathryn, this is Jamie. I might tag team this with Ken a little bit, but -- and I'm superstitious, but I'm going to say this anyway. Our commissioning process, so far, has gone as well as we could have possibly expected. And as we mentioned earlier in the comments, we expect to formally commission Hunter 2 this quarter. We expect the costs, as we get into more normal run rates or commissioned run rates, to be very good with Hunter 2, of course. And our expectation -- you didn't ask this, but I'll answer it anyway, our expectation is that we would, after making the appropriate modifications to our Hunter 1 plant, the 900,000 that you mentioned, to bring that back online, maybe a little sooner than we thought, but I'd say within 12 to 14 months, plus or minus.

Kenneth R. Allen

Kathryn, the only other costs, and I'm sure you picked this up, but would be the depreciation in the interest that would start to flow through as well once we declare commission.

Kathryn I. Thompson - Thompson Research Group, LLC

Sure, yes, I understood that. Moving to pricing, we're hearing very positive commentary out of Texas with the cement price increase. And in California, it's our understanding that you've taken a little bit more of a 2-tier approach. So the overall number is about in line with the market but the timing is a little bit different, spreading out the increases through the spring. Could you maybe expand more on the thoughts behind this strategy and also talk a little bit about market acceptance of cement price increases in California?

James B. Rogers

Kathryn, it's Jamie again. We saw -- I mean, to your 2-tier comment, a modest $2 price improvement -- price increase in January. The next tier of $3, we feel very confident about that, occurring April 1, and we're optimistic as well of potential increases in the spring -- in the summer months.

Kathryn I. Thompson - Thompson Research Group, LLC

And what would the general magnitude of that be and would it be in California and Texas?

James B. Rogers

Well, I was talking about California. Yes, let me go back to Texas -- or let me go to Texas. In Texas, it's kind of depending on what local market you're in, it will range, but I would say both are going to occur in April. As you get closer to north Texas in the $3 price increase range for cement; in central and -- central Texas and Houston, closer to a $5 range. I think that covers your question.

Operator

Our next question comes from Jack Kasprzak with BB&T Capital Markets.

John F. Kasprzak - BB&T Capital Markets, Research Division

How much of your Hunter cement capacity, the -- before you bring on the old kiln, so in 12, not 12 to 14 months from now, but with the new kiln, how much of that do you think you'll use in your own ready-mix operations now?

James B. Rogers

Jack, we're bringing on these new assets in east and southeast Texas and southern Arkansas, and we disclosed that transaction. We expect to -- can I defer the answer to that question until we get in the next teleconference? If we get a little further down the road, I can give you a little better answer? But I will tell you that from an additional incremental opportunity, with those assets alone, we would expect 100,000-plus extra tons.

John F. Kasprzak - BB&T Capital Markets, Research Division

Okay. And so with what's happening in Texas in terms of demand and the positive dynamics you guys have laid out, are you expecting that the new Hunter capacity will basically be sold out once the commissioning phase is finished?

James B. Rogers

Yes.

John F. Kasprzak - BB&T Capital Markets, Research Division

Okay. You talked about price increases in California, but can you remind us or refresh our memory where you think capacity utilization is in California? Is it still around 50% or a shade below?

Kenneth R. Allen

Yes, Jack, this is Ken. You're talking about our cement plants?

John F. Kasprzak - BB&T Capital Markets, Research Division

Sorry, no, the industry.

Kenneth R. Allen

The industry?

John F. Kasprzak - BB&T Capital Markets, Research Division

Yes.

Kenneth R. Allen

The industry -- roughly, we're around 60-plus percent. The whole industry is probably going to be around the same area as well.

Operator

Our next question comes from Garik Shmois with Longbow Research.

Garik S. Shmois - Longbow Research LLC

First question is on Texas cement volumes for you. You've been taking share for the last 2 quarters based on publicly available data and your results. Just wondering, is this a reflection of either your geographic positioning -- are you seeding the market right now in anticipation of the Hunter expansion, or are these maybe some large projects that you're servicing at this point in time that may end up rolling off sometime down the road and then your share will come more in line with the market? I'm just wondering if you could provide some color on your outperformance over the last couple of quarters.

James B. Rogers

Garik, this is Jamie. We feel -- in terms of our backlogs and looking forward, I mean, we feel very bullish about volumes in the market going forward. I think we're in a very good position to supply that market with the additional capacity we're bringing on. We may be in a relatively better position than our competitors.

Garik S. Shmois - Longbow Research LLC

Okay, that's fair. I guess, just turning to concrete or consumer products division. You've got your pricing in the division. Right now, volumes are accelerating. Just wondering what is it going to take for the business to be profitable moving forward. You have -- taking out some new assets, it doesn't sound like there's going to be much, at least in the near term, incremental profit shift. But if you could just help us with some of the dynamics in the consumer products division, how you're thinking about getting the profitability there and maybe if you could provide a timeline. Is fiscal '14 profitability a possibility there?

Kenneth R. Allen

Well, sooner rather than later is our expectation. One thing I'm excited about is the market dynamics and what we've experienced so far in the first couple, 3 months of 2013. We're seeing demand and volumes not only higher than we were a year ago, but also a little bit higher than maybe our ability in some select markets to supply the market. And that's a nice challenge for us to have and one that we haven't had in a while. It bodes well for pricing, and it bodes well for our ability to increase our margins to those levels closer to profitability -- or to profitability that you mentioned.

Garik S. Shmois - Longbow Research LLC

Do you think -- just wrapping up this round of questions. Do you think that volume is a more significant driver for profitability in the business or is it pricing right now?

James B. Rogers

I'd say both, but we're certainly focused on the pricing front.

Operator

Our next question comes from Todd Vencil with Sterne Agee.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

You gave the plant utilization in California. Can you tell me what it is in north Texas at this point?

Kenneth R. Allen

Yes, our north Texas plant is going to be running pretty close to capacity, 85%, 90%.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Got it. And I see Hunter is effectively sold out at this point.

Kenneth R. Allen

You heard Jamie say that, yes, we've added some capacity, but effectively, we've got to get it running at full capacity, too. But I think if I were modeling the company, I think that's generally right.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Okay. And then, in Texas, I mean, I think the pricing -- you talked about the timing of the price increases, and I appreciate that. It hasn't come through as much as I think we were looking for in the quarter. Is that just a question of the timing of the price increases? I mean, obviously, you can't or aren't going to comment on what my expectations were, but is there a little bit going on with the timing of the price increases? Or perhaps are you guys maybe pushing your markets out a little bit more than you were? Has there been any change in sort of haul distance or anything like that, that would affect the price in Texas?

Melvin G. Brekhus

Todd, I'd say it's the influence of mix and backlog, as Ken already alluded to. And I mean, I'm just looking forward to this April price increases and I feel very good, as good as I've ever felt, about these being very successful.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Excellent. And on the mix side, what was that? Was it the product mix or was it customer? Or how do we break that down?

Kenneth R. Allen

Are you talking -- specifically, which market and product are you talking about here?

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

I'm sorry. I meant cement in Texas for this one.

Kenneth R. Allen

So you're seeing positive price movement in our markets in Texas that's not as driven by product or customer mix. In California, that's where you're seeing the customer and product mix impact.

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Okay. I mean, can you -- on that, and that will be my last question, can you give any color on the nature of the product and customer mix? I mean, is it a different end market customer? Is it a customer that's further away? What kind of product mix are you seeing?

Kenneth R. Allen

As California picks up and some of the markets are a little further from the plant for picking up, where the percentage of our product that we're shipping is going a little further and that's reducing our overall price. And that's an indication or an example of the sort of thing we're seeing.

Operator

Our next question comes from Kevin Money with Cleveland Research Company.

Kevin Money

Most of my questions have been answered. I'm just wanting to -- could you give some color as to how much would change cement -- how much of the volumes you would consider sort of a large project volume versus more of a short-term spot type of volume?

Kenneth R. Allen

Yes, let me -- this is Ken. Let me take a shot at that. We have -- if you're trying to figure out how quickly a price increase or price change moves through our P&L, we do have public works, and, again, roughly over time, half of our cement goes into public work. That seems to stretch things out. On the other end of the scale, residential tends to be something that moves through our P&L shipments from backlog pretty quickly. And so it takes about 2 to 3 quarters for a price increase to be fully realized, given our backlogs. And I tell you, I have to go back and look at some of the individual projects. But clearly, we've got a big slug of projects there that are long-term highway public works projects.

Kevin Money

And as we sort of move through the recovery here in residential and sort of non-res, nonpublic takes up a bigger share, do you expect that kind of duration to reduce as we move forward? Or how do you look at that?

Kenneth R. Allen

Logically -- it's a good question. Logically, you would expect that to be the case. Having watched the company go through a couple of cycles over the last 2 to 3 decades, it's kind of hard to look at the numbers and see that it really changes a lot over time.

Operator

Our next question comes from Mike Betts with Jefferies & Company.

Michael Betts - Jefferies & Company, Inc., Research Division

I have 3 questions. The first one is quite a detailed question in so much as it's on the schedule that Linda sends out. It shows on that at the last page, there's $3.6 million profit from the sale of real estate in aggregates. But I didn't really see it in the other income line in aggregates. Could you maybe some give me some idea of -- am I reading that right and what happened if there was some offset? Secondly, huge difference in the profitability between the ready-mix assets in east Texas that you're acquiring and what you've got currently. I mean, I guess what I'm interested in that is what's the cost of that? Is it because there's lots of small rural markets? But more importantly, is that some indication of the sort of potential that you think that you could achieve in the rest of the business? Or in reality, are those just long-term much more profitable areas? And then the final question, you referred to some costs in terms of refurb-ing the existing Hunter kiln. Could you quantify those for us? And also, maybe talk through -- you've talked about the NESHAP costs in the past. But when do they start going through? Should we start putting those in, in FY 2014? And if so, how much?

Kenneth R. Allen

Mike, this is Ken. And I think I kept up with your questions there, and I'll give it a shot. Keep me on track here if I get off track. Good insightful questions. The sale of the land actually occurred in our expanded shale and clay operations in California, and so as a result, they're down in the discontinued operations, so good eye on that. Your question about east Texas is also a good one, and really, you hit the nail on the head. Rural markets tend to have higher margins and generally, higher profitability. And what we have acquired here, this is one reason for our excitement about this, is those are the type of markets we've acquired on that. Price...

Michael Betts - Jefferies & Company, Inc., Research Division

Let me follow up on that, Ken, if I could. I mean, the profitability is high but it did drop substantially in the last year. I mean, was there any one-offs in previous years or was that just the market?

Kenneth R. Allen

Yes, a couple of things, Mike. That market out there has tended to lag to metropolitan markets, so the downturn came a little later than metropolitan markets, and that's the primary driver. Just looking forward, whether in talking about how those assets performed under different operation, management and things like that, we've kept those folks so we're very excited about that but just not wanting to comment on past performance. We think that overall our total ready-mix operations ought to eventually earn an EBIT percentage, EBIT margin in the high-single digits. A market like we're talking about here ought to be above that. And as things come back, we've got to see some improvement. And these new assets that we have roughly right now are shipping around 1 million yards a year on an annual basis, and they've done much more than twice that. That gives you a little bit of a sense of the upside that these operations have too. Let's see...

Michael Betts - Jefferies & Company, Inc., Research Division

And then, the final question, Ken, which I rushed, apologies, is the Hunter costs of refurb-ing the existing kiln and some idea of the NESHAP spend in terms of how much of that might be in FY 2014.

Kenneth R. Allen

We've said in the past that total environmental capital spending ought to be in the $30 million range. And just in very, very rough numbers, you could split that about evenly between Hunter and other spending on NESHAP, Hunter 1, to bring that back up in the manner that Jamie talked about. If we're going to bring that back online within 12 to 14 months, you're going to have to see a decent part of that be spent in fiscal year '14. Now we'll give a little more detail maybe in July on that. But if I were modeling the company, this -- how you split that out and your timing isn't going to move the needle too much, I'd put 1/2 of it in fiscal year '14 and 1/2 of it in '15 for now.

Michael Betts - Jefferies & Company, Inc., Research Division

Okay. And then just one very final, very short question, if I may. Do you have the DD&A for the east Texas operations?

Kenneth R. Allen

No, but we'll provide that in the July teleconference. Right now, as we said in the 8-K filing, we've got to do our final calculations on valuation to understand more fully the gain on the transaction, and that will give us the answer to your question. So we'll have a little more detail here in the summer.

Operator

Our next question comes from Glenn Wortman with Sidoti & Company.

Glenn Wortman - Sidoti & Company, LLC

You appear to be outperforming the market in Southern California. Can you confirm if that's the case? And if so, what's driving that?

James B. Rogers

Glenn, I mean, I think over time we're going to be in line with the rest of the market. But, I mean, we've got a different mix of business, that Ken alluded to, and we -- I think from time to time, you'll see us outperform the market. But over time, I think we'll be in line with it over the long haul.

Glenn Wortman - Sidoti & Company, LLC

Okay. And then can you just outline any specific recent or planned pricing actions for ready-mix and aggregates?

James B. Rogers

Yes, I think I spoke to cement earlier. Ready-mix is a little bit more fluid, more bid to misbid, more jobs to job. You've seen what we've done so far for 3 months to 9 months. And I think the most recent formal price increase that we've had is in DFW, March 1, in the $6 range. Again, that will be for north Texas or for DFW, but kind of fluid and trending up in the other submarkets as well. Aggregates, we have announced price increases for both north Texas and central Texas. North Texas in the April time frame for $1 for coarse aggregate, $0.50 to $1 for fine aggregate. And then central Texas, I think we're in June for $1 for both.

Operator

Our next question comes from Jim Barrett with CL King.

James Barrett - CL King & Associates, Inc., Research Division

Ken, could you also talk further about the east Texas assets you bought from Trinity? What is the average age of those trucks? And what is the foreseeable capital expenditures in that regard?

Kenneth R. Allen

Well, I would have to look. You're asking a real good question, and it really gets to how you might operate these assets versus a metropolitan area. In a Metropolitan area, we might try to move 9,000 yards through a truck a year, and it's going to be significantly less than that in a rural market. So you tend to see a little older average age of the truck. It's going to be -- Jamie -- it doesn't move the needle too much. It's going to be older than a metropolitan market.

James Barrett - CL King & Associates, Inc., Research Division

Okay. That I can understand, so there's less wear and tear. And a very basic question on the new kiln being commissioned at Hunter. Should we assume that because it's new, there will be an extended period of time before it requires scheduled maintenance?

Kenneth R. Allen

This is Ken. I'd tell you, one of the things about a new kiln coming up, and again a good question, we're just going to have to find out. It's one thing for the kiln to run 1 or 2 months straight at capacity or something like that. It's quite another for the plant to run 6 to 8 months straight, particularly a new plant when you're trying to figure out all of the different fleets and everything to optimize it. So we're just going to have to find out. I think the key is, to this point, we believe we have the kiln we wanted to have, and that's good and basic news to that point.

Operator

[Operator Instructions] Our next question comes from Taryn Kuida with D.A. Davidson.

Taryn Kuida - D.A. Davidson & Co., Research Division

Just a follow-up on the planned maintenance, I was wondering if you had any scheduled for the fourth quarter.

Kenneth R. Allen

This is Ken. We have no major unusual maintenance planned for the fourth quarter. Good question.

Operator

Sir, there are no further questioners in the queue.

Thomas Lesley Vines

All right. Well, then, we'll say goodbye to everybody, and look forward to seeing, hopefully, many of you in a few weeks down in Austin, Texas. Hope you have a great day and a great Easter weekend. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call. We would like to thank you for your participation, and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Texas Industries Management Discusses Q3 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts