Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Welcome to the Lafarge North America fourth-quarter and year-end earnings conference call. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Eric Olsen, Chief Financial Officer. Please go ahead sir.
ERIC OLSEN, CFO & EVP, LAFARGE NORTH AMERICA: Thank you. Good afternoon and welcome to Lafarge North America's fourth-quarter and 2004 year-end earnings conference call. Before getting started, I would 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 this morning's press release for further details.
Fourth-quarter results continued the favorable trend we experienced in the first nine months of 2004. Lafarge North America achieved record sales and earnings for the fourth quarter and for the full year. Each of our businesses contributed significant earnings growth for the year, and cement, gypsum and aggregates each achieved volume records. We also had our best quarterly safety results ever.
Sales volumes remained strong in the fourth quarter. Shipments for cement, aggregates, ready-mix, asphalt, paving and gypsum were all up for the quarter. As you may recall, we also had a very strong fourth quarter 2003 due to favorable weather and pent-up demand from the slow first half of 2003.
Prices also continued their upward trend during the fourth quarter. Gypsum prices maintained their significant improvement over 2003 levels. Cement prices further expanded their year-on-year gains, aggregates pricing continued its favorable trends, and overall, ready-mix margin over materials improved for the quarter. Paving contract margins were one area of pricing weakness for the Company.
Sales and EBIT for the quarter were up 14 percent and 12 percent, respectively. Consolidated EBIT from continuing operations in the quarter was $145 million, up $15.5 million from the fourth quarter of 2003. If we exclude the impact of the stronger Canadian dollar on both sales and EBIT, the fourth-quarter increases were 10 percent and 7 percent, respectively.
The stronger Canadian dollar contributed $6.5 million to operating income for the quarter. Pension expense decreased by about $6 million compared to last year due to a large catch-up adjusting entry made during the fourth quarter of 2003. We also recorded nonrecurring legal expenses in our cement division associated with the case involving our Sugar Creek cement plant which was settled during the fourth quarter. The expenses associated with this case were $3.1 million for the fourth quarter and $10.6 million for the full year.
During the quarter we recorded a onetime benefit to net interest expense of 4.9 million associated with accrued interest on a tax receivable in Canada. Our year-over-year tax expense was impacted by a charge of 7.6 million taken on in the fourth quarter of 2003 and tax benefit of $6.3 million recorded during the fourth quarter of 2004.
We reported diluted earnings per share from continuing operations in the fourth quarter 2004 of $1.28, up from reported diluted earnings per share of 91 cents per share in 2003. As I mentioned, the 2003 and 2004 earnings per share numbers contain a few nonrecurring tax, legal and interest items which affect the comparison from 2003 to 2004. On a like-for-like basis, 2004 earnings per share of $1.19 -- adjusted for onetime tax, legal and interest items -- was up 18 percent from $1.01 in 2003, though like-for-like comparisons exclude the tax benefit of $6.3 million from 2004 and a tax expense of $7.6 million from 2003. As well, legal expenses of $3.1 million and interest income of $4.9 million are excluded from the fourth quarter of 2004.
Turning now to results for the full year. Lafarge North America reported record sales, net income and earnings per share, with net income and earnings per share from continuing operations both up more than 30 percent. Net income from continuing operations of $295 million, or $3.86 per share, was up from $217 million, or $2.93 per share in 2003.
Consolidated net sales of $3.76 billion were up 13 percent over 2003. At a constant Canadian U.S. dollar exchange rate, sales and operating income were up 10 percent and 13 percent, respectively, compared with last year. The stronger Canadian dollar added $18.3 million to operating income for the year. However, this benefit was largely offset by increased pension and other post-retirement expenses of $13.2 million and $3.8 million in foreign exchange losses on our U.S. dollar investments in Canada.
As we have indicated in the past, even though we are a U.S. dollar reporting entity, U.S. GAAP requires us to include our Canadian subsidiaries' foreign exchange gains and losses on its U.S. dollar investments in our consolidated results.
As in the fourth quarter earnings comparisons, there were a few unusual items that affected both periods. On a like-for-like basis, we earned $3.83 per share in 2004, up 38 percent from $2.78 per share in 2003. 2004 earnings included onetime tax benefit of $6.3 million and interest expense benefit of $4.9 million due to accrued interest on a tax receivable. These benefits were partially offset by onetime legal expenses during 2004 in our cement division of $10.6 million. In 2003, earnings included a gain of $31.2 million resulting from the sale of our Detroit cement terminal, offset by a onetime tax charge of $7.6 million.
Turning now to the operating results by segment. Our aggregates, concrete and asphalt business segment -- as we now call our former construction materials business -- reported operating income of $69.2 million compared to $72.9 million in the year-ago period. Sales for the quarter were $623.6 million, up 14 percent from 2003. Although aggregates reported a solid improvement in earnings, cost pressures in ready-mixed concrete and pricing pressures in paving held back overall earnings.
Operating profit from aggregates was $47 million in the fourth quarter, up $4 million from the prior year. Aggregates sales volumes for the quarter achieved a record at 35.8 million short tons, up 6 percent from the fourth quarter of 2003. Canadian volumes were up by 7 percent, with especially strong growth in Western Canada. U.S. volumes were up by 4 percent for the quarter.
Average selling prices increased 1 percent over the prior year, with solid increases in Eastern Canada and Eastern U.S. being partially offset by some pricing pressure in Denver and a product mix impact in Western Canada.
In order to replenish our inventory levels from the strong 2004 shipping season, we produced more during the higher-cost month of December, which, when combined with additional repairs and maintenance, resulted in an additional $2 million in production costs compared to the fourth quarter of 2003. Also, additional stripping costs for the period reduced earnings by $2 million.
Ready-mixed concrete profits in the quarter declined from $13.3 million in 2003 to $9.7 million in 2004. Ready-mixed concrete shipments of 2.8 million cubic yards were up 3 percent for the quarter. Strong volume growth in Western Canada and Eastern U.S. was partially offset by a volume decline in Western U.S. Volumes in the U.S. were down 1 percent compared to prior year, whereas Canadian volumes were up 6 percent.
Ready-mix prices were up by 4.4 percent for the quarter, with most markets, including Denver, improving, but with continuing pressure in Toronto and Montreal. Margin over materials showed an improvement in the fourth quarter as cement material cost increases have been passed along in most of our markets. Increased diesel cost and catch-up maintenance cost as a result of higher volumes during the year contributed to year-over-year cost increases.
For the fourth quarter, asphalt and paving volumes increased 12 percent. However, the combined profitability of the two product lines was essentially flat. Paving contract margin pressure in Western U.S. and Eastern Canada negatively impacted profitability. Increased use of recycled products partially offset higher energy and raw material costs.
For the full year, our aggregates, concrete and asphalt operations earned $208 million, up from $184 million in 2003. Pension and other post-retirement cost increases for the full year of $9 million were partially offset by a stronger Canadian dollar, which contributed $8.6 million to the bottom-line. Profit growth was driven primarily by the aggregates business, which alone generated a $32 million profit improvement.
Aggregates profits for the year were $156 million, with average margins growing from 20.2 percent to 21.3 percent. Full-year aggregates sales volume increased 12 percent to reach 133 million short tons. Canadian volumes were up 13 percent on the year with a strong improvement in Western Canada, while U.S. volumes were up 11 percent. Aggregate prices were up by 2.1 percent for the full year. Cost increases included additional stripping costs of $5 million and energy cost growth of $4 million.
Ready-mixed concrete profits for the full year declined from $34.7 million in 2003 to $30.8 million in 2004. Pricing pressures in Denver, Toronto and Montreal impacted overall ready-mix margins, with margin over materials declining by …