This Benchmark Company Is Shocking the Street

The cement business is as good a benchmark as you are going to get on the U.S. economy. And if this company is any indication, cement sales are accelerating at a double-digit rate.

Texas Industries, Inc. (TXI) sells cement and aggregates mostly in Texas and California, the two largest cement markets in the U.S.

In 2007, the company’s cement capacity was two million tons per year. Today, the company can produce six million tons per year and is targeting eight million tons per year over the next several years.

The company’s latest earnings results were excellent.

In its fiscal fourth quarter of 2013 (ended May 31, 2013), the company’s total sales grew to $213.5 million, up solidly from comparable quarterly sales of $158.5 million.

Company management said its latest quarter saw double-digit percentage growth in all its products shipped. The Texas market in particular is experiencing a “strong recovery” in cement demand.

The company reported that total cement shipments increased 23% in Texas and 22% in California over the prior fiscal year. Average prices increased four percent in Texas and decreased three percent in California.

For a cement company, Texas Industries trades like a high-flying technology stock. It’s a trader’s paradise with a high valuation and significant price volatility.

While cement unit costs increased markedly in its latest quarter, mostly due to higher energy expenses, the big rise in cement shipments surprised the marketplace and was way ahead of Wall Street expectations. The numbers support new construction growth in the two largest U.S. markets.

Oddly, a lot of the cement business in the U.S. is foreign controlled. The largest cement company in the world is generally considered to be Paris-based Lafarge S.A. (LG.PA), followed by Mexico-based CEMEX S.A.B. de C.V. (CX).

Both companies reported weaker earnings results in their latest quarters, but that was due to operations in foreign markets. CEMEX noted in its 2013 first-quarter earnings report that U.S. sales grew eight percent, reflecting improving demand in spite of unfavorable weather conditions.

The company said that there is momentum in industrial and commercial sectors, but that the residential sector of the U.S. market continues to be the main driver of domestic cement consumption.

Certainly, what Texas Industries reported in its recent earnings results was encouraging. Wall Street expects the company to grow its sales just over 25% in fiscal 2014 and 14% the following year. Double-digit sales growth is a tough thing to come by these days. (See “How Big Institutional Investors Will React to This Quarter’s Weak Earnings Results.”)

Cement and aggregate is commoditized and consumption demand is inconsistent. But like I’ve said before, if there is to be meaningful economic recovery in the global economy, it will be led by the U.S. economy.

The numbers for new demand in cement shipments support that view. Whether the growth is sustainable or not is a whole other question.