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Owens Corning (OC) Up 7.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Owens Corning (OC - Free Report) . Shares have added about 7.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Owens Corning Q1 Earnings & Net Sales Beat

Owens Corning reported impressive results in first-quarter 2024, with earnings and net sales surpassing the Zacks Consensus Estimate. Earnings increased on a year-over-year basis despite a net sales decline. Sales declined due to lower sales volumes in the Insulation and Composites segments.

Inside the Headlines

The company reported adjusted earnings per share (EPS) of $3.59, which topped the consensus mark of $3.04 by 18.1% and increased 28% from $2.80 a year ago.

Net sales of $2.3 billion beat the consensus mark of $2.26 billion by 1.8% but fell 1% year over year from $2.33 billion.

Segment Details

Net sales in the Composites segment decreased 11% year over year to $523 million. This was due to lower volumes and price declines resulting from low spot prices in glass reinforcements. However, earnings before interest and taxes (EBIT) margin expanded to 9% from 8% in the year-ago period. EBITDA margins of 17% also increased from 16% reported a year ago. Favorable manufacturing costs and deflation for delivery and input costs partially offset the impact of production downtime and lower demand, which was due to lower prices.

The Insulation segment’s net sales were $904 million, down 2% year over year. Although demand was stable for the segment’s North American business, its European business was impacted by the weaker macro environment. The favorable mix and positive price offset lower volumes in Europe. EBIT margin rose 100 basis points (bps) year-over-year to 18%. EBITDA margin of 23% was flat from the year-ago period.

The Roofing segment’s net sales rose 7% year over year to $957 million, driven by strong demand for premium laminate shingles and attachment of components products, as well as favorable mix and carryover price. However, this was offset mainly by volume impact from the segment’s exit of protective packaging. EBIT and EBITDA margins expanded 700 bps and 600 bps to 30% and 31%, respectively. The EBIT improvement was mainly backed by positive prices, favorable manufacturing costs and mix.

Operating Highlights

Adjusted EBIT and adjusted EBITDA improved 21% and 16%, respectively, on a year-over-year basis. Adjusted EBIT and adjusted EBITDA margin expanded 400 bps each from the year-ago figure.

Balance Sheet

As of Mar 31, 2024, the company had cash and cash equivalents of $1.25 billion compared with $1.62 billion at 2023-end. Long-term debt — net of the current portion — totaled $2.65 billion, down from $2.62 billion at 2023-end.

In the first three months of 2024, net cash provided by operating activities was $24 million against net cash used in operating activities of $164 million in the previous year. Free cash flow came in at a negative $128 million in the reported period compared with $322 million a year ago.

In the first quarter, the company returned $182 million to shareholders through dividends and share repurchases. It paid a total quarterly cash dividend of $52 million and repurchased 0.9 million shares of common stock for $130 million.

Q2 Outlook

Owens Corning's businesses primarily depend on residential repair and remodeling activity, U.S. housing starts, global commercial construction activity and industrial production. The company expects its North American building and construction markets to stay favorable, with strong demand for its products in the near term. Macro trends and geopolitical tensions outside North America are causing slow global economic growth.

For the second quarter of 2024, the company expects net sales to be in line with the second quarter of 2023 while generating approximately 20% EBIT margins.

2024 Outlook

For 2024, the company expects general corporate expenses between $240 million and $250 million. Interest expenses are estimated to be between $70 million and $80 million.

Capital additions, as well as depreciation and amortization, are estimated at an approximate value of $550 million. The company projects an effective tax rate of 24-26% 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 14.63% due to these changes.

VGM Scores

Currently, Owens Corning has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 this revision looks promising. It comes with little surprise Owens Corning has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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