It has been about a month since the last earnings report for Owens Corning (OC). Shares have lost about 2.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Owens Corning due for a breakout? 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) Q1 Earnings & Sales Miss, Down Y/Y
Owens Corning reported first-quarter 2019 results, wherein earnings and net sales not only missed the respective Zacks Consensus Estimate but also declined on a year-over-year basis. The decline is due to lower contribution from Roofing and Insulation businesses.
The company reported adjusted earnings of 54 cents per share in the first quarter, lagging the Zacks Consensus Estimate of 56 by 3.6%. Also, net sales of $1.67 billion missed analysts’ expectation of $1.69 billion by 1.5% in the reported quarter.
Adjusted earnings also decreased 34.1% year over year due to lower sales volume in Roofing and Insulation, along with inflationary and transportation cost pressure.
Moreover, its top line was down 1% on a year-over-year basis, thanks to lower sales and production volumes in Roofing and Insulation.
The company has three reportable segments, namely Composites, Insulation and Roofing. Net sales in the Composites segment declined 0.4% year over year to $513 million. Despite a weaker U.S. roofing market, sales volume grew 4% in the quarter, offset by unfavorable foreign currency translation. Earnings before interest and taxes (EBIT) margin contracted 100 basis points (bps) to 11%. The downside was mainly due to higher inflation and planned furnace rebuild costs.
The Roofing segment’s net sales dipped 4% year over year to $614 million. Moreover, EBIT margin fell 300 bps to 12% in the quarter. The weaker-than-expected performance was due to lower sales volumes and reduced growth in the U.S. asphalt shingle market (down 6%).
Net sales from the Insulation segment came in at $591 million, down 1% year over year. Contribution from the Paroc acquisition and higher selling prices were offset by lower sales volumes, mainly in North American residential fiberglass insulation business. EBIT margin in the quarter under review contracted 200 bps to 3%.
During the first quarter, Owens Corning’s adjusted EBIT decreased 23.7% to $116 million from $152 million in the year-ago period. Strong pricing actions were offset by weaker contribution from Roofing and Insulation businesses.
As of Mar 31, 2019, the company had cash and cash equivalents of $82 million compared with $78 million in the corresponding period of 2018. Net cash used for operations came in at $151 million at the end of the first quarter compared with $90 million in the comparable year-ago period.
In the first quarter, Owens Corning repurchased 1 million shares of its common stock for $48 million. As of Mar 31, 2019, 3.6 million shares were remaining under the current authorization.
Full-Year 2019 Outlook
In Roofing, the company expects the U.S. asphalt shingle end market to be relatively flat on slightly lower industry shipments, assuming average storm demand. Meanwhile, it anticipates favorable geographic mix and a higher share of shipments.
In Composites, although the global industrial production growth outlook has softened (mainly in Europe), it expects growth in the glass fiber market. The company projects increased volume and improved operating performance to offset higher inflation.
In Insulation, Owens Corning expects growth in global construction and industrial insulation markets. The company also anticipates improved operating performance to boost profit in technical and other building insulation businesses. It anticipates continued positive pricing to be offset by lower volumes and production curtailments in the North American residential fiberglass insulation business.
Owens Corning estimates an effective tax rate of 26-28%. The company expects general corporate expenses within $140-$150 million in 2019. Capital expenditures are expected to total approximately $500 million. It continues to expect strong conversion of adjusted earnings into free cash flow.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.93% due to these changes.
At this time, Owens Corning has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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