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Owens Corning (OC) Q2 Earnings Beat Estimates, Fall Y/Y

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Owens Corning’s (OC - Free Report) shares gained 2.3% on Jul 29 after it reported impressive results for second-quarter 2020. The top and the bottom line surpassed the Zacks Consensus Estimate on the back of its market leading businesses, innovative product and process technologies, and capabilities. Faster recovery in residential end markets, particularly in the United States, improved manufacturing leverage and strong cost controls helped it deliver solid results.

The company is confident about the remainder of this year and 2021 by focusing on four key areas: safety of employees and other key stakeholders; close connection with customers, suppliers and markets; adapting to rapid changes in businesses to overcome near-term challenges while positioning well for long-term success; and a strong balance sheet.

Inside the Headlines

The company reported adjusted earnings of 88 cents per share, surpassing the consensus mark of 26 cents by a whopping 238.5%. However, the said metric declined 31.8% year over year.

Owens Corning Inc Price, Consensus and EPS Surprise


Owens Corning Inc Price, Consensus and EPS Surprise

Owens Corning Inc price-consensus-eps-surprise-chart | Owens Corning Inc Quote

Net sales of $1.63 billion topped the consensus mark of $1.53 billion by 6% but declined 15.3% year over year. Also, the metric declined 14% on a constant-currency (cc) basis. The downside was mainly due to significant drop in order volumes. Nonetheless, it has started seeing recovery, mainly in U.S. residential market and parts of Europe.

Segment Details

Net sales in the Composites segment dropped 26% year over year to $398 million. Segment sales were down 23% on a constant-currency basis, primarily due to soft volumes. Also, unfavorable customer mix and slightly lower selling prices added to the woes.

Earnings before interest and taxes (EBIT) margin of 2% contracted 1100 basis points (bps) from the year-ago quarter’s 13%. Reduced sales and production volumes along with negative impacts from production curtailments, lower selling prices and foreign currency translation impacted the results.

Insulation segment’s net sales came in at $595 million, down 10% year over year and 9% on a constant-currency basis. The downside was mainly due to COVID-19-impacted volumes and lower selling prices. Within Insulation umbrella, North American residential fiberglass insulation volumes remained flat year over year with favorable price realization. Volume in mineral wool businesses, in Europe and United States, also remained flat with the year-ago period. However, technical and other building Installation’s volumes were down from prior year. EBIT margin also contracted 100 bps to 5%.

The Roofing segment’s net sales declined 13% year over year to $677 million, thanks to lower shingle volumes stemming from destocking at distribution early in the second quarter as well as lower out-the-door demand in April. Additionally, lower selling prices and third-party asphalt sales led to the downside. EBIT margin, however, expanded 300 bps year over year as low marketing and administrative expenses offset the volume and production curtailments woes.

Operating Highlights

Adjusted EBIT during the quarter totaled $167 million, indicating a 27.7% decline on a year-over-year basis due to decline in Composites.

Balance Sheet

As of Jun 30, 2020, the company had cash and cash equivalents of $582 million compared with $172 million at 2019-end. Long-term debt, net of current portion totaled $3.3 billion, rose from $3 billion at 2019-end.

The company has $1.5 billion of available liquidity at the end of the second quarter. During the quarter, it repaid $210 million in revolving credit facility. Meanwhile, its $150-million term loan is likely to mature in February 2021.

In the first six months of 2020, net cash used in operating activities was $229 million, down from $287 million a year ago. Free cash flow came in at $233 million, down from $323 million a year ago.

Through June, the company returned $133 million to shareholders in the form of share repurchases and dividends. At quarter-end, 2.3 million shares were available under the current authorization.

Updated 2020 Outlook

Owens Corning’s businesses are witnessing negative trends in global industrial production, U.S. housing starts as well as global commercial and industrial construction activity. It expects continuation of COVID-19 impacts to hurt its end markets.

Nonetheless, it expects to capitalize on near-term market demand, control costs and maintain strong conversion of adjusted earnings into free cash flow, as residential, commercial, and industrial markets are rebounding.

The company brought down general corporate expenses to $105-$115 million from $100-$120 million expected earlier. Capital additions are expected in the range of $250-$300 million versus $150-$200 expected earlier. Interest expenses are projected within $125-$130 million, compared with $120-$125 million projected earlier. Owens Corning estimates an effective tax rate of 26-28%.

Zacks Rank & Peer Release

Owens Corning, which shares space with United Rentals, Inc. (URI - Free Report) and Installed Building Products, Inc. (IBP - Free Report) in the same industry, currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Armstrong World Industries, Inc. (AWI - Free Report) reported disappointing second-quarter 2020 results. Earnings and revenues missed the respective Zacks Consensus Estimate as well as declined year over year.

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