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Why Is Owens Corning (OC) Up 3.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Owens Corning (OC - Free Report) . Shares have added about 3.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Owens Corning due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Owens Corning's Q1 Earnings & Sales Top, Margins Rise

Owens Corning reported solid results for first-quarter 2022, with earnings and net sales surpassing their respective Zacks Consensus Estimate and increasing on a year-over-year basis. The solid quarterly results were backed by strong demand across the markets served, structural improvements and strategic investments.

Brian Chambers, OC’s chair and chief executive officer, said, “We remain focused on servicing our customers’ near-term demand while also positioning ourselves to capitalize on longer-term secular trends that will drive additional growth for our company and value for our shareholders.”

Inside the Headlines

The company reported adjusted earnings of $2.84 per share, which beat the consensus mark of $2.42 by 17.4% and increased 59% from $1.79 a year ago.

Net sales of $2.346 billion topped the consensus mark of $2.226 billion by 5.4% and increased 23% year over year. The uptick was mainly backed by solid segmental results.

Segment Details

Net sales in the Composites segment increased 28% year over year to $714 million. The upside was driven by higher selling prices and the favorable impact of the customer mix. Earnings before interest and taxes (EBIT) margin of 22% improved 600 basis points (bps) from the year-ago quarter. The uptrend was mainly driven by improved production leverage, higher selling prices and a favorable mix, partially offset by inflation and increased transportation costs.

The Insulation segment’s net sales came in at $859 million, up 23% year over year on higher selling prices and sales volumes. EBIT increased to $129 million and EBIT margin of 15% increased 300 bps.

The Roofing segment’s net sales rose 18% year over year to $838 million, driven by higher selling prices. Volumes were relatively flat as higher shingle volumes were offset by lower Components volume. EBIT increased from $20 million to $176 million. EBIT margin contracted 100 bps year over year to 21% due to input cost inflation, primarily from asphalt and other petroleum-based products and increased transportation costs.

Operating Highlights

Adjusted EBIT and adjusted EBITDA rose 48% and 36% on a year-over-year basis, respectively. Adjusted EBIT and adjusted EBITDA margins rose 300 and 200 bps from the year-ago period, respectively.

Balance Sheet

As of Mar 31, 2022, the company had cash and cash equivalents of $748 million compared with $959 million at 2021-end. Long-term debt — net of current portion — totaled $2.96 billion, almost flat from 2021-end.

For the first quarter, net cash provided by operating activities was $158 million compared with $204 million in the year-ago period. Free cash flow came in at $51 million for the first quarter, down from $120 million a year ago.

In the first quarter, the company repurchased 2.5 million shares of common stock for $229 million. At quarter-end, 10.9 million shares were available under the current authorization.

Second-Quarter Outlook

Owens Corning's businesses primarily depend on residential repair and remodeling activity, U.S. housing starts, global commercial construction activity, and global industrial production.

For the second quarter, the company expects the U.S. residential housing market and global commercial and industrial markets to remain strong while closely managing the ongoing impacts of inflation, supply chain disruptions and the COVID-19 pandemic. It expects net sales and adjusted EBIT to grow year over year for the said quarter.

2022 View

For 2022, general corporate expenses are expected to be between $160 million and $170 million. Capital additions are estimated at $480 million, below the anticipated depreciation and amortization of $520 million. Interest expenses are estimated between $115 million and $125 million. The company estimates an effective tax rate of 25-27% and a cash tax rate of 22-24%, both on adjusted earnings.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 13.29% due to these changes.

VGM Scores

At this time, Owens Corning has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Owens Corning has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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