US Lime’s Texas Kiln Nears Commissioning as Higher Costs Offset Revenue Growth

United States Lime & Minerals (Nasdaq: USLM) reported third-quarter results on October 30, 2026, with revenue rising 4.1% to $106.2 million from $102.0 million a year earlier. Higher prices and shipment volumes supported sales, but production and delivery costs increased faster. The result was lower profit during a quarter in which its new Texas kiln began producing intermittently.

The new kiln is approaching commissioning as construction demand weakens. Steadier production could reduce startup costs, while slower customer activity could limit sales from the expanded plant. USLM can fund the remaining work from its existing resources; the near-term earnings contribution will depend on reliable production, lower unit costs and demand.

Lime demand spans construction and industry

USLM extracts limestone and processes it into products used in construction and industrial applications. Quicklime is made by heating high-calcium limestone in kilns. It is also processed into hydrated lime and lime slurry, giving customers different forms of lime for soil treatment, manufacturing and environmental applications.

In construction, lime improves the workability and load-bearing characteristics of poor soils, and hydrated lime is used in asphalt pavements. Orders depend on projects reaching the stage when those materials are needed. Delays to road or building work can postpone shipments even when the project remains planned.

Steel producers use quicklime to remove impurities during refining. USLM also supplies environmental, industrial and other customers, giving it several sources of demand. Their performance can diverge, as stronger steel demand and weaker construction activity did this quarter.

The annual report identifies energy as the principal variable cost and notes that freight can be substantial relative to product value. Fuel-efficient production and proximity to customers help control the cost of supplying each ton. Higher diesel prices can erode the benefit of selling-price increases by making deliveries more expensive.

Higher costs reduced margins

The quarterly filing attributes revenue growth to average selling prices rising 2.5% and shipment volumes increasing 1.6%. Dollar amounts in the following table are in millions.

Cost of revenues increased $5.59 million against only $4.17 million of additional revenue. Gross margin consequently fell to 47.8% from 51.2%, a contraction of approximately 3.35 percentage points. Management attributed the pressure primarily to higher transportation and fuel costs, particularly diesel, and inefficiencies integrating the Texas kiln into existing operations.

Selling, general and administrative costs rose 2.3%, from $5.93 million to $6.07 million. Operating profit fell $1.56 million. Higher other income, principally from interest on cash, offset $0.38 million of that decline, and lower tax expense offset another $0.44 million. Net income consequently declined by $0.74 million, less than the reduction in operating profit.

The Texas kiln’s operating contribution

USLM’s 2025 annual report described the Texas expansion as an opportunity to improve fuel efficiency. In its July 29 second-quarter release, management expected the kiln to come online during the summer. It began producing intermittently in the third quarter, with final commissioning now expected in the fourth quarter.

USLM will begin depreciating the kiln and related equipment after final commissioning, according to the September filing. Bringing the plant into steadier production could reduce the inefficiencies already affecting costs. The new depreciation expense will also enter reported operating profit, so the net earnings benefit will depend on the size of those operating gains.

The approximately $65 million investment must generate cash and an adequate return over its operating life. Higher throughput and lower fuel use could improve that return if customers buy the additional output at profitable delivered prices. USLM has not quantified the expected savings, depreciation charge or incremental earnings contribution, leaving the size of the benefit uncertain.

Construction demand weakened in the quarter

In the second-quarter release, management reported growth from construction and steel customers and expected data-center projects to support construction demand. By the third quarter, lower construction demand was offsetting part of the increase from steel. The change leaves the expanded plant facing a less favorable construction backdrop than management described in July.

Management remains optimistic about construction over time, but cited delays to large projects, including permitting issues, and early signs of slower Texas residential activity. Some delayed work could produce shipments in later periods; sustained housing weakness would reduce the pace of new demand. USLM has not quantified the contribution of either factor, so the release provides limited evidence about how quickly construction volumes could recover.

Cash flow covers a larger investment outlay

For the first nine months, operating cash flow increased 3.3% to $123.3 million from $119.4 million, while capital expenditure rose to $50.2 million from $42.8 million. Operating cash less gross purchases of property, plant and equipment was consequently $73.1 million, down from $76.6 million. This calculation excludes asset-sale proceeds and shows that higher operating cash did not fully offset the larger investment outlay.

The cash-flow statement includes a $13.5 million add-back for deferred tax expense, which reduced earnings without an equivalent current-period cash payment. Changes in operating assets and liabilities used $18.1 million of cash, as increased receivables and inventory outweighed offsets elsewhere. Cash generation therefore benefited from tax timing while customer collections and other operating balances absorbed funds.

At September 30, cash totaled $439.2 million and no borrowings were outstanding. USLM had incurred $61.0 million of the approximately $65 million project estimate and paid $60.4 million in cash. Those resources give the company ample capacity to complete the kiln and manage fluctuations in demand.

Stable kiln operation accompanied by recovery from the third quarter’s 47.8% gross margin would provide evidence that the expansion is improving earnings after depreciation. If margins remain weak once startup disruption has eased, diesel costs, pricing and the volume available to fill the plant would become the main constraints on its contribution.