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Why Is Owens Corning (OC) Up 20.8% 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 20.8% 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 (OC - Free Report) Q1 Earnings Top Estimates, Shares Up

Owens Corning reported impressive earnings in first-quarter 2020. The bottom line surpassed the Zacks Consensus Estimate and improved on a year-over-year basis.

Inside the Headlines

The company reported adjusted earnings of 60 cents per share, which beat the consensus mark of 56 cents by 7.1%. Also, the bottom line increased 13.2% year over year.

Net sales of $1.6 billion lagged the consensus mark of $1.65 billion by 3% and declined 4% year over year. Also, the metric declined 3% on a constant-currency (cc) basis. The downside was mainly due to lower Roofing volumes, primarily owing to lesser storm demand carryover and reduced shipments to distributors.

Segment Details

Net sales in the Composites segment dropped 4% year over year to $494 million. Segment sales were down 2% on a cc basis, primarily due to pricing-related headwinds. Volumes improved slightly from a year ago, as growth in downstream specialty applications was offset by declines in glass demand in Asia Pacific due to COVID-19 impacts.

Earnings before interest and taxes (EBIT) margin in the quarter contracted 200 bps from the year-ago figure. Continued strength in the manufacturing business was offset by negative impacts of balancing production with demand.

Insulation segment’s net sales came in at $603 million, up 2% year over year and 4% on a cc basis. The upside was mainly driven by strong volume growth across all categories except China, which was affected by COVID-19. However, this was offset by lower selling prices.

EBIT margin surged 300 bps to 6%, driven by higher sales volumes, favorable manufacturing performance and lower curtailment costs.

The Roofing segment’s net sales declined 10% year over year to $555 million, thanks to lower shingle volumes stemming from the lack of storm carryover in the quarter and reduced shipments to distributors in March. EBIT margin remained flat year over year at 12%.

Operating Highlights

During the reported quarter, adjusted EBIT came in at $116 million, flat on a year-over-year basis. Improvement in the Insulation business was offset by softness in Composites and Roofing segments.

Balance Sheet

As of Mar 31, 2020, the company had cash and cash equivalents of $234 million compared with $172 million at 2019-end.

It had $908 million of available liquidity as of Mar 31. During the quarter, it borrowed $400 million on the existing revolving credit facility to strengthen cash position. Meanwhile, its $150 million of term loan is likely to mature in February 2021.

Net cash used in operating activities was $52 million, down from $151 million in the year-ago quarter.

In the first quarter, the company bought back 1.3 million shares of common stock for $81 million. At quarter-end, 2.3 million shares were available for repurchase under the current authorization. Notably, it returned $133 million to shareholders via share repurchases and dividend payouts.

Updated 2020 Outlook

Owens Corning’s businesses are witnessing negative trends in global industrial production, U.S. housing starts, and global commercial and industrial construction activities. It expects the COVID-19 outbreak to impact the previously provided expectations for the segment.

Nonetheless, the company has been reducing costs, minimizing capital expenditures and managing working capital.

The company now expects general corporate expenses in the range of $100-$120 million compared with $125-$135 million expected earlier. Capital additions are expected in the range of $150-$200 million, lower than depreciation and amortization of $460 million. It continues to expect strong conversion of adjusted earnings to free cash flow.

Interest expenses are likely to be between $120 million and $125 million compared with $115 million projected earlier. Owens Corning estimates an effective tax rate of 26-28%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -97.3% due to these changes.

VGM Scores

At this time, Owens Corning has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Owens Corning has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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