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Owens Corning (OC) Down 8.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
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It has been about a month since the last earnings report for Owens Corning (OC). Shares have lost about 8.2% in that time frame, underperforming 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 Q4 Earnings & Revenue Beat Estimates

Owens Corning reported fourth-quarter 2018 results, wherein adjusted earnings of $1.38 per share, surpassed the Zacks Consensus Estimate of $1.29 by 7%. Also, net sales of $1.72 billion surpassed analysts’ expectation of $1.68 billion by 2.4% in the reported quarter.

The company’s adjusted earnings increased 24.3% year over year due to solid pricing momentum, offsetting inflationary and transportation cost pressure.

Its 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.

Notably, the company increased its quarterly cash dividend by 5% from a year ago to 22 cents per share, payable on Apr 2 to shareholders of record as of Mar 8, 2019.

Segment Details

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

Net sales in the Composites segment declined 5% year over year to $481 million. Also, earnings before interest and taxes (EBIT) margin contracted 300 basis points (bps) to 12%. The downside was mainly due to lower volumes in several core markets.

The Roofing segment’s net sales dipped 3% year over year to $546 million. EBIT margin fell 400 bps to 15% in the quarter. The weaker performance in the segment was due to reduced growth in the U.S. asphalt shingle market. The positives from remodeling and new construction markets were more than offset by lower storm demand.

Nonetheless, net sales from the Insulation segment came in at $732 million, up 23% year over year. EBIT margin in the quarter under review also surged 300 bps to 16%. The upside was driven by the acquisition of Paroc and price improvement of $128 million, mainly in the North American residential fiberglass insulation business.

Operating Highlights

During the fourth quarter, Owens Corning’s adjusted EBIT increased 6% to $228 million from $215 million in the year-ago period. However, adjusted EBIT margin declined 20 bps to 13.2%.

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 Dec 31, 2018, the company had cash and cash equivalents of $78 million compared with $246 million in the corresponding period of 2017. Net cash provided by operations came in at $803 million at the end of 2018 compared with $1,016 million at 2017-end.

In 2018, Owens Corning repurchased 2.9 million shares of its common stock for $203 million. As of Dec 31, 2018, 4.6 million shares were remaining under the current authorization.

Full-Year 2018 Review

For the full year of 2018, Owens Corning reported adjusted earnings per share of $4.94, reflecting 12.3% year-over-year growth. Also, the company’s consolidated net sales increased 11% to $7.06 billion from the prior-year level of $6.38 billion. Adjusted EBIT also grew 0.7% from the prior-year quarter to $861 million. The positive performance stemmed from strong Insulation business.

Insulation segment’s net sales grew an impressive 36%, adding 38.5% to total net sales. However, net sales from both Composites and Roofing segment declined 1% and 2%, respectively.

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 -32.43% due to these changes.

VGM Scores

At this time, Owens Corning has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 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 #4 (Sell). We expect a below average return from the stock in the next few months.



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