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Owens Corning (OC) to Post Q4 Earnings: What's in the Cards?

Zacks Equity Research

Owens Corning OC is slated to report fourth-quarter 2018 results on Feb 20, before the opening bell.

In the last reported quarter, the company posted higher earnings and sales on a year-over-year basis. Its top line grew 7% from the prior-year quarter, courtesy of contributions from Insulation acquisitions, as well as successful pricing actions in both Roofing and Insulation. The bottom line increased 23.2% from the year-ago quarter, given solid pricing momentum.

However, the company recorded a negative earnings surprise of 9.9% in the last reported quarter. Moreover, its earnings missed estimates in three of the trailing four quarters, with the average negative surprise being 9.4%.

Owens Corning Inc Price and EPS Surprise

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

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the to-be-reported quarter, Owens Corning’s quarterly earnings are expected at $1.28 per share, which marks an increase of 15.3% from the year-ago period. Revenues are estimated at $1.68 billion, reflecting a rise of 4.8% from the year-ago quarter.

Let’s See How Things are Shaping Up for This Announcement

Acquisitions play an important role in Owens Corning’s growth strategy. The acquisition of Paroc enabled the company to strengthen portfolio and expand its geographic scope. In fact, the said acquisition added $337 million to net sales in the first nine months of 2018.

Strong price realization during the first nine months of 2018 led to an improvement in operating margins, despite lower market volumes and persistent material cost inflation. Price realization during the same period improved $170 million (with $90-million improvement in Insulation business). It anticipates adjusted EBIT and EBITDA margins to grow 15% and 21%, respectively, in the fourth quarter.

The Zacks Consensus Estimate for Insulation segment (contributing 39.1% to total third-quarter revenues) revenues is pegged at $733 million, indicating a rise from $591 million in the year-ago period.

However, demand for Owens Corning’s Composites business services is likely to have been affected in the to-be-reported quarter due to increase in imposed tariff on imported steel and aluminium. The demand is mostly driven by general global economic activity, along with increasing replacement of traditional materials such as aluminum, wood and steel with composites that offer lighter weight, improved strength, lack of conductivity, and corrosion resistance. The imposed tariff on such materials raises a concern.

Meanwhile, the company’s Composites segment (accounting for 27.9% of third-quarter sales) revenues are estimated to reach $492 million, reflecting an increase from $483 million in the year-ago period.

Moreover, the consensus mark for the Roofing segment’s (35.5% of total third-quarter revenues) revenues stands at $474 million, reflecting a decline of 3.9% year over year. In fact, Owens Corning delivered weaker top-line performance in the third quarter of 2018 on lower industry shipments due to significantly reduced storm demand. The impact of lower asphalt shingle market and transportation inflation is expected to have lingered in the fourth quarter as well.

What Our Model Indicates

Our proven model suggests a beat for Owens Corning in the quarter to be reported. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates.

Earnings ESP: The Earnings ESP for the company is +5.83% as the Most Accurate Estimate is pegged at $1.35 while the Zacks Consensus Estimate stands at $1.28. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Owens Corning currently has a Zacks Rank #3 (Hold), which increases the predictive power of ESP.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combination

Here are some other construction companies that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in the upcoming releases:

Toll Brothers, Inc. TOL has an Earnings ESP of +1.91% and a Zacks Rank #3.

Winnebago Industries, Inc. WGO has an Earnings ESP of +10.80% and a Zacks Rank #3.

Forterra, Inc. FRTA has an Earnings ESP of +8.99% and a Zacks Rank #2.

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