Monday, January 10, 2011

Investopedia: Texas Industries For Patient Investors Only

Although the stock of cement and aggregates producer Texas Industries Inc. (NYSE:TXI) has bounced about 50% off the mid-2010 lows, investors may yet be in for a long wait with this company. Residential construction keeps digging its way to a new bottom, commercial construction is not substantially healthier and states across the country are facing choking budget problems. All in all, then, waiting for fundamental improvement here is a bit like watching cement dry ... though there is very likely substantial value buried deep within the story. 

The Quarter That Was
There was no logical reason to think that Texas Industries would have a strong fiscal quarter and the company did not by general standards. This is a case, though, where investors might want to look a little more carefully, and doing so shows a better picture. True, revenue growth of 4% is not going to make anybody forget about Apple, but 4% growth in this housing/construction environment is a pretty good result. That's all the more relevant, given that the company also surpassed the average topline estimate for the quarter by about 5%.

Cement revenue was flat, as an increase in shipments offset a decrease in prices, while aggregates posted low-teens growth on a strong improvement in shipped volumes. Consumer sales were up 4% as a double-digit increase in shipments was offset by a nearly double-digit decrease in realized prices. (For more, see Opportunities In Cement.)

Profitability is not quite as good now, though. Gross profit fell 28% from the year-ago level and only the aggregates business showed improvement (and aggregates happen to be the most profitable from a gross margin perspective). Operating loss expanded from the year-ago level, but the company did have positive operating cash flow for the first half of its fiscal year and nearly cleared its maintenance cap-ex needs.


Please click below to continue:
http://stocks.investopedia.com/stock-analysis/2011/Texas-Industries-For-Patient-Investors-Only-TXI-GVA-MLM-EXP-CX0110.aspx

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