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Owens Corning (OC) Q3 Earnings & Revenues Miss, Shares Down

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Owens Corning’s (OC - Free Report) shares declined nearly 10% after third-quarter 2018 earnings release on Oct 24, wherein earnings and revenues missed the Zacks Consensus Estimate. The company’s performance was poor due to significant volume decline in the Roofing business.

Owens Corning reported adjusted earnings of $1.54 per share in the third quarter, missing the consensus mark of $1.71 per share by 9.9%. Also, net sales of $1.82 billion missed analysts’ expectation of $1.89 billion by 3.9% in the reported quarter.

However, Owens Corning’s top line grew 7% on a year-over-year basis, courtesy of contributions from Insulation acquisitions, as well as successful pricing actions in both Roofing and Insulation. Also, the bottom line increased 23.2% year over year due to solid pricing momentum. Notably, pricing more than offset inflationary pressure for the first time in a year.

Owens Corning Inc Price, Consensus and EPS Surprise

 

Owens Corning Inc Price, Consensus and EPS Surprise | Owens Corning Inc Quote


Segment Details

The company has three reportable segments, namely the Composites, Insulation and Roofing.

The Composites segment net sales declined 1% year over year to $508 million. However, earnings before interest and taxes (EBIT) margin in third-quarter 2018 grew 100 basis points (bps) to 13%. Currency headwinds negatively impacted the segment’s performance.

Also, the Roofing segment net sales dipped 5% to $645 million year over year. EBIT margin fell 200 bps to 20% in the quarter. The weaker performance in the sector was due to 20% lower industry shipments on significantly reduced storm demand.

However, net sales from the Insulation segment grew 25% year over year to $710 million. Also, EBIT margin in the quarter under review surged 200 bps to 13%. This was primarily driven by the Paroc acquisition and price improvement of $40 million, mainly in the U.S. residential fiberglass building insulation market.

Operating Highlights

During the quarter, Owens Corning’s EBIT increased 12.4% year over year to $259 million compared with $227 million in the year-ago quarter. Also, EBIT margin increased 90 bps to 14.2% from the prior-year level.

During the quarter, Owens Corning reported adjusted EBIT of $267 million compared with $239 million in 2017, depicting a record improvement of 11.7%. Also, the reported figure grew 70 bps year over year. Strong pricing actions in Insulation and Roofing, along with positives from the Paroc acquisition offset weaker market conditions across the businesses.

Balance Sheet

As of Sep 30 2018, the company had cash and cash equivalents of $136 million compared with $246 million on Dec 31, 2017.

Owens Corning repurchased 1.7 million shares of its common stock for $100 million during third-quarter 2018. As of Sep 30 2018, 4.6 million shares were remaining under the current authorization.

2018 Earnings Outlook

In Roofing, the company expects the U.S. asphalt shingle market to be down roughly 10% on lower storm demand. The impact of asphalt and transportation inflation is expected to be offset by strong pricing performance.

In Composites, it expects growth in the glass fiber market,backed by global industrial production improvement, and a lower EBIT of approximately $260 million owing to reduced volume in the U.S., European, and Indian roofing market, along with higher-than-anticipated inflation.

In Insulation, the company now expects EBIT growth of approximately $110 million, down from $150 million. The downtrend is due to weaker market expectations across geographies and product platforms. However, it remains on track to achieve $120 million of price.

Owens Corning estimates an effective tax rate of 26-28%. The company now expects general corporate expenses within $125-$130 million in 2018 compared with $135-$140 million expected earlier.

It continues to expect conversion of adjusted earnings into free cash flow at about 100%. Also, adjusted EBIT is now anticipated to be on par with last year’s $855 million, below the previously estimated range of $925-$975 million.

Zacks Rank & Key Picks

Owens Corning currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the same industry are Armstrong World Industries, Inc. (AWI - Free Report) , Continental Building Products, Inc. and NCI Building Systems, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Armstrong World, Continental Building and NCI Building’s 2018 earnings are expected to grow 23.5%, 52.6% and 81.3%, respectively.

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