Texas Industries (TXI)

• Article
• Discussion
• Edit
• History
• Bookmark

Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment Bears: Reasons To Sell Feeling Bearish? Be the first to explain why this would make a poor investment Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Max Young Related Articles Building Materials Cemex S.A.B. de C.V. (CX) Martin Marietta Materials (MLM) Mortgage Market Meltdown Vulcan Materials Company (VMC)

TXI's products are used in construction projects funded by the government. As a result, government budget constraints and funding reallocation have an effect on whether certain construction projects go forward. For example, funds distributed under multi-year federal highway legislation historically comprised a majority of California and Texas’ public works spending.^[2] Significant decreases in public works spending in either state negatively affects TXI's business. In 2008, states around the country - including Texas and California - began to have budget shortfalls that affect construction on roads, highways, and other projects in which aggregates are used.^[3] As long as such budget shortfalls continue, the demand for cement, aggregates, and concrete in publicly-funded projects will be negatively impacted.

The subprime mortgage crisis resulted in a significant decline in demand for cement used in residential and non-residential construction in California since its historic high in 2005. Residential construction has declined to a lesser degree in Texas, but has not had a significant impact on total cement demand.^[4]

[edit] Business Overview

Texas Industries operates in the United States; in 2008 it shipped 5.0 million tons of finished cement, 21.9 million tons of natural aggregates, 1.6 million cubic yards of lightweight aggregates and 3.8 million cubic yards of ready-mix concrete from 85 manufacturing facilities in six states.^[5] Destination states include Texas, California, Louisiana, Oklahoma, Nevada, and Arizona.^[6] The Texas market area accounted for approximately 82% of TXI's net sales in fiscal year 2008 and 78% of net sales in fiscal year 2007.^[7]

TXI breaks down its business by operating segment. Net sales for FY2008 are broken down by operating segment as follows:

• 40.4% of net sales originated from the Cement segment, which produces and sells gray portland cement, as well as specialty cements such as masonry cement and oil well cement.
• 24.1% of net sales originated from the Aggregates segment, which produces and sells stone, sand and gravel as its principal products, as well as "light aggregates" such as expanded shale and clay aggregates.
• 35.5% of net sales originated from the Consumer Products segment, which produces and sells ready-mix concrete as the principal product, as well as packaged concrete and related products.

^[8]

[edit] Net Sales and Operating Profits

Texas Industries' total net sales increased 3.27% in FY2008 following a 5.54% increase in FY2007. Operating profits changed by -21.1% and 26.5% over the same time periods.

^[9]

[edit] End Markets

TXI's products are used in diverse markets, including the public works, residential, commercial, retail, industrial and institutional construction sectors, as well as the energy industry.

[edit] Geographic Analysis

TXI earns over 80% of its revenue in Texas.^[10] California is the second largest source of revenues; the balance is made up by Louisiana, Oklahoma, Nevada, and Arizona. TXI believes that it is the largest supplier of expanded shale and clay specialty aggregate products west of the Mississippi River, the second largest supplier of stone, sand and gravel natural aggregate products in North Texas, one of the largest suppliers of ready-mix concrete in North Texas and one of the largest suppliers of sand and gravel aggregate products and ready-mix concrete in northern Louisiana.^[11]

[edit] Trends & Forces

[edit] New Plant Construction Continues Focus on Improving Efficiency

In May 2008, TXI completed its expanded and modernized Oro Grande, California cement plant. The plant is an advanced dry process facility designed to efficiently produce approximately 2.3 million tons of cement annually, as compared to previously existing, less efficient 1.3 million tons of production capacity.^[12] The company expects to become the second largest producer of cement in southern California because of this increase. Similarly, in October 2007 TXI commenced construction of a project to expand the capacity of its Hunter, Texas cement plant by approximately 1.4 million tons, on top of the plant's already-present capacity of 900,000 tons.^[13] When completed in 2010, the Hunter plant will be a modern, low cost facility, similar to the Midlothian, TX and Oro Grande dry process facilities. In 2005, as part of its drive for efficiency, TXI spun off 100% of the Chaparral Steel Company.^[14]

[edit] Rail Transport and Proximity Keep TXI's Costs Low

All of TXI's products are expensive to transport, particularly aggregates, which due to their high weight to value ratio, limits marketing to areas within approximately 100 miles of the plant sites.^[15] To reduce the costs of transport, TXI endeavors to use rail transport whenever possible; its cement is distributed by rail or truck to eight distribution terminals located throughout marketing areas.^[16] For aggregates as well, direct rail links are established between production facilities and key markets to reduce the cost of transportation. Rail loops provide rapid loading and unloading of products, and also give TXI cost advantage over competing suppliers who rely more heavily on truck transportation.

[edit] TXI Supplies Attractive Markets

TXI's two largest markets are California and Texas, the largest cement markets in the United States, with 11% and 13% market share, respectively.^[17] Texas Industries is the largest producer of cement in Texas, with 30% of the state's total production capacity.^[18] As mentioned above, with the completion of the Oro Grande plant expansion, TXI expects to become the second largest producer of cement in California. Both of these markets are targeted by TXI because they are large, have above average long-term growth population growth, strong economic activity and a year-round building season.^[19]

[edit] Construction Markets Are Cyclical; Demand Follows Cycles

Cement, aggregate and concrete markets are generally regional because of high transportation costs. Demand for these products, then, comes primarily from specific regional public (infrastructure), residential and non-residential construction markets. Furthermore, construction activity in these markets is influenced by prevailing economic conditions, including availability of public funds, interest rate levels, inflation, consumer spending habits and employment. These factors fluctuate more widely in regional markets than in the United States as a whole. As a result, significant declines in the level of general construction activity in TXI's markets negatively affects business. In particular, because most of TXI's cement is sold in Texas and California, and because cement contributes more to TXI's sales than any other product line, a significant decline in cement demand in Texas or California will negatively impact the company.

[edit] Competition

All of the product markets in which TXI participates are highly competitive, but each market has its own set of competitors. Market competitors break down as follows.

[edit] Cement

• Cemex S.A.B. de C.V. (CX)
• Holcim Ltd.

[edit] Aggregates

• Vulcan Materials Company (VMC)
• Martin Marietta Materials (MLM)
• Hanson Aggregates

[edit] Ready-Mix Concrete

• US Concrete
• Campbell Ready Mix
• Lattimore Materials

As previously mentioned, these markets are generally regional due to high transportation costs. As a result, in TXI's aggregates and consumer products markets, there is little competition from imported products. However, the cement segment does compete with imported cement because of the higher value of the product. Due to the lack of product differentiation, competition for all of TXI's products is based largely on price and, to a lesser extent, quality of product and service.

[edit] References

1. ↑ Morningstar Report, 7/11/2008
2. ↑ SEC, Texas Industries 10-K, pg. 12
3. ↑ Stateline.com, "States worry about dwindling road funds," 7/24/2008
4. ↑ SEC, Texas Industries 10-K, pg. 12
5. ↑ SEC, Texas Industries 10-K, pg. 1
6. ↑ SEC, Texas Industries 10-K, pg. 3
7. ↑ SEC, Texas Industries 10-K, pg. 20
8. ↑ SEC, Texas Industries 10-K, pg. 20
9. ↑ SEC, Texas Industries 10-K, pg. 31
10. ↑ Morningstar Report, 7/11/2008
11. ↑ SEC, Texas Industries 10-K, pg. 2
12. ↑ SEC, Texas Industries 10-K, pg. 1
13. ↑ SEC, Texas Industries 10-K, pg. 1
14. ↑ SEC, Texas Industries 10-K, pg. 1
15. ↑ SEC, Texas Industries 10-K, pg. 4
16. ↑ SEC, Texas Industries 10-K, pg. 3
17. ↑ SEC, Texas Industries 10-K, pg. 2
18. ↑ SEC, Texas Industries 10-K, pg. 2
19. ↑ SEC, Texas Industries 10-K, pg. 2
20. ↑ SEC, Cemex 20-F, pg.11