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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, ladies and gentlemen, and welcome to your quarter one 2004 Lafarge North America earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. Larry Waisanen, Chief Financial Officer. Please go ahead, sir.
LARRY WAISANEN, CFO, EVP, LAFARGE NORTH AMERICA: Good morning, and welcome to Lafarge North America's first-quarter 2004 earnings conference call. Before getting started, I'd like to remind you that forward-looking statements in this conference call are made under the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act. Please refer to the full Safe Harbor text included in last night's press release for further details.
Every year when we present our first-quarter results, we emphasize the impact -- the importance of viewing first-quarter results with a high degree of caution. With a large majority of our operations located in northern climates, sales are traditionally low in the first quarter and normally represent about 15 percent of the full-year total. Consequently, year-over-year volume variances can appear to be quite large in percentage terms, when in reality, they are not necessarily indicative of the real trends or the level of underlying demand for our product. We also take the opportunity during this slower season to perform a large portion of our annual major maintenance, and these costs are expensed as incurred. Structurally, we incur a loss in the first quarter and the magnitude of that loss can be impacted rather significantly by a week or two of unusually good or bad weather, as well as by changes in the timing of our maintenance programs.
In most of our markets, the winter of 2004 would qualify as normal, but that was a significant improvement over the very poor start we had in 2003. That combined with what appears to be continued strength in construction resulted in a substantial increase in shipments in both Canada and the U.S., and an improvement in operating results in each of our major business segments. Our results in the first quarter were negatively impacted by a $6 million increase in pension and post-retirement expense, as expected. A much stronger Canadian dollar compared with the first quarter of 2003, contributed about $6 million to the quarterly operating loss of our Canadian operations when translated into U.S. dollars. Of course, if the Canadian dollar remains at its current level of around 73 to 74 cents for the balance of the year, which is higher than the average of 71.5 cents for all of 2003, there will be a positive impact on our full-year earnings of approximately 4 to 7 cents per share.
Our 2003 results have been re-stated to reflect the divested Florida cement operations as discontinued operations. So all of the comparisons I provide this morning will focus on the changes experienced in our continuing operations. Consolidated sales from continuing operations increased 24 percent to reach $509 million in the quarter. Excluding the Canadian dollar impact, which indicates the sales as favorable, the increase was 17 percent. Our operating loss, or EBIT, before corporate and unallocated expenses, declined 25 percent to $77 million in the quarter. The gypsum business reported its third consecutive quarter of profits, reaching $4.5 million in the first quarter, and operating results in cement and construction materials improved considerably compared with the first quarter of last year.
Our net loss from continuing operations was $71 million in the quarter, an improvement of $16 million or 19 percent from 2003. On a per-share basis, the net loss from continuing operations was 96 cents compared with a loss of $1.19 last year, representing a 19 percent year-over-year improvement. To place the first-quarter results in context, knowing that the first quarter of 2003 was particularly weak, it may be useful to compare it to the first quarter of 2002 when we experienced relatively mild weather. In the first quarter of 2002, we lost $53 million or 74 cents per share.
While sales volumes were actually a little stronger in 2004 than they were in 2002, and our gypsum results improved by about $7 million, these improvements were largely offset by the timing of cement plant maintenance and the absence of non-recurring divestments and derivative gains that we recorded in 2002. The increase in the quarterly loss can be attributed to three key factors -- an increase in pension and post-retirement expense, which over that period of time equates to $13 million or 11 cents per share; a much stronger Canadian dollar, resulting in the Canadian operating loss when translated to U.S. dollars being $8.5 million or 7 cents per share higher; and the absence of the operating profit from our divested Florida operations, which was $3 million after-tax or 4 cents per share in the first quarter of 2002.
Turning now to our operating results by segment -- our construction materials business lost $64 million in the first quarter, an improvement of $3.7 million from 2003, while sales increased 25 percent to reach $287 million. Excluding the favorable impact of the stronger Canadian dollar, sales increased 17 percent in the quarter. However, the stronger Canadian dollar negatively impacted the conversion of our Canadian operating results into U.S. dollars, increasing our seasonal operating loss by $5.5 million. Excluding the currency effect, our operating loss for the quarter was 14 percent lower than last year. In addition to the currency effect, our construction materials operating profit comparison was negatively impacted by an additional $3 million of pension expense in 2004 and higher maintenance expense as we accelerated some of our annual maintenance projects in order to optimize our production to meet expected demand. To date, energy has not been a negative factor, as diesel prices in the first quarter of 2003 were very high. However, if diesel prices remain at the current 90-cents-per-gallon level for the balance of the year, it would negatively impact our year-over-year cost trend in the construction materials segment.
Aggregate sales volumes were 16.1 million short tons in the quarter, 3.5 million tons higher than last year. Volumes improved in all of our major markets except Denver, New Mexico and western New York. In Canada, volumes were up 1.2 million short tons to 7.9 million tons, while U.S. shipments reached 8.2 million tons, an increase of 2.3 million tons. In the Great Lakes market, which has been hard hit by weak economic conditions over the past couple of years, volumes were up sharply in the quarter, a good sign for the balance of the year. Average selling prices were up 4 percent in the quarter with broad-based improvement recorded in most of our markets except the western U.S., where prices were flat. Generally higher repair costs in the first quarter, due in part to timing, higher pension expense, and the increase in the Canadian dollar, partially offset the favorable volume in pricing effects. The operating loss in aggregates was $23 million in the quarter, $1.3 million better than last year.
Sales of ready-mix concrete increased 10.7 percent or 180,000 cubic yards, to reach 1,925,000 cubic yards in the quarter. Canadian concrete volumes were 1 million cubic yards, up approximately 120,000 cubic yards from last year. In the U.S., first-quarter volumes rose approximately 60,000 yards to reach 900,000 yards. Average selling prices were down slightly, as improvements in western Canada and the eastern U.S. markets were offset by lower prices in the weak western U.S. markets. The impact of higher volumes was somewhat offset by higher pension expense and the impact of the increase in the Canadian dollar. The operating loss in ready-mix for the quarter was $7.8 million, $2.7 million lower than the loss incurred in 2003.
In the asphalt and paving business, regardless of weather patterns, a very small percentage of the annual activity occurs in the first quarter, and therefore, the trends are not significant at this time of the year. That being said, our operating loss in this business was $27 million in the quarter, in line with last year. Our asphalt and paving backlogs at the end of the quarter, particularly in the western U.S., were well ahead of the same period last year.
In our cement segment, the operating loss of $18 million was $12 million lower than last year. Sales increased $28 million or 19 percent to reach 177 million for the quarter. Excluding the favorable impact of the higher Canadian dollar on sales, the increase was 13 percent in the quarter. With strong results in western Canada in the quarter, overall, Canadian cement operating results were slightly positive in the quarter, and the foreign currency impact on operating results was negligible. Cement sales volumes, excluding the divested Florida operations, increased (ph) 236,000 tons or 15 percent, reaching 1,853,000 tons. U.S. sales of 1.3 million tons were up 17.5 percent, while Canadian sales volumes totaled approximately 600,000 tons, up 8.5 percent from last year. Average cement prices were up 0.5 percent in Canada and down 1.2 percent in the U.S. In Canada, price increases were implemented in January except in Alberta, where we anticipate prices will be increased during the second quarter. Canadian price increases generally range from $3 to $5 Canadian per metric ton or 2 to 4 percent. U.S. prices declined over the course of 2003, and while there has not been any further slippage in 2004, compared with the first quarter of last year, prices are down slightly. In the U.S., we have increased prices 2 to $6 per short ton on April 1 in virtually all of our markets. Contrasted with the poor price performance we experienced in the U.S. in 2003, the current market environment is favorable, as cement is in short supply in some areas and world trading of cement has been impacted by high ocean freight rates and the lack of vessel availability. This situation has driven cement import prices up, on average, $15 per ton from 2003 levels, and spot prices are being quoted as high as $20 per ton higher …