Owens Corning (OC) Q3 Earnings Beat Estimates, Stock Falls
Owens Corning OC reported mixed results for third-quarter 2023, wherein earnings surpassed the Zacks Consensus Estimate and increased on a year-over-year basis. Net sales missed the consensus mark and declined from the prior year.
Sales declined due to lower sales volumes in both the Insulation and Composites segments, partially offset by higher selling prices.
Owens Corning's shares plunged 10.34% on Oct 25 after the earnings release.
Inside the Headlines
The company reported adjusted earnings of $4.15 per share, which topped the consensus mark of $3.78 by 9.8% and increased 15% from $3.61 a year ago.
Owens Corning Inc Price, Consensus and EPS Surprise
Owens Corning Inc price-consensus-eps-surprise-chart | Owens Corning Inc Quote
Net sales of $2.48 billion missed the consensus mark of $2.52 billion by 1.7% and declined 2% year over year.
Segment Details
Net sales in the Composites segment decreased 11% year over year to $567 million. This was due to 9% lower volumes and price declines resulting from lower spot prices in glass reinforcements. Earnings before interest and taxes (“EBIT”) margin contracted to 14% from 20% in the year-ago period. EBITDA margins of 22% also declined from 26% reported a year ago.
The Insulation segment’s net sales came in at $913 million, down 5% year over year on 10% lower volumes in both the North American residential insulation and technical and global insulation businesses, partially offset by positive price realization. EBIT and EBITDA margins of 16% and 22%, respectively, decreased by 200 and 100 basis points (bps), respectively, on lower volumes and planned maintenance downtime and production investments, partially offset by positive price realization.
The Roofing segment’s net sales rose 8% year over year to $1,084 million, driven by strong demand in several markets backed by higher levels of storm activity, as well as favorable mix and positive price. Both EBIT and EBITDA margins expanded by 900 bps to 32% and 33%, respectively, driven by positive price/cost as well as higher volumes.
Operating Highlights
Adjusted EBIT and adjusted EBITDA improved 6.4% and 5.9%, respectively, on a year-over-year basis. Adjusted EBIT and adjusted EBITDA margin expanded by 200 bps, each from the year-ago figure.
Balance Sheet
As of Sep 30, 2023, the company had cash and cash equivalents of $1,323 million compared with $1,099 million at the 2022-end. Long-term debt — net of the current portion — totaled $3 billion, up from $2.99 billion at 2022-end.
In the first nine months of 2023, net cash used in operating activities was $1,021 million versus net cash provided by operating activities of $1,085 million in the previous year. Free cash flow came in at $581 million for the reported period compared with $367 million a year ago.
In the third quarter, the company returned $187 million to shareholders through dividends and share repurchases. At the end of the third quarter, 10.8 million shares were available for repurchase under the current authorization.
Q4 Outlook
Owens Corning's businesses primarily depend on residential repair and remodeling activity, U.S. housing starts, global commercial construction activity and industrial production. The company expects challenges in many of its end markets due to inflationary pressures, increased interest rates and continued geopolitical uncertainties.
For the fourth quarter of 2023, the company expects net sales to remain slightly below year over year and EBIT margins in the mid-teens compared with 15% reported in the prior-year quarter.
For the quarter, the company expects revenues in the Insulation segment to be down by mid-single digits compared with the prior year’s value of $956 million. The EBIT margins are expected to be in the mid-teens compared with 16% in the year-ago quarter.
For the Composites segment, revenues are anticipated to be down by high-single digits compared with $589 million reported in the prior-year quarter. The EBIT margins are expected to be in mid to high single-digit range versus 11% reported a year ago.
For the Roofing segment, revenues are expected to be up by mid to high-single digits in comparison with $799 million year over year. The EBIT margins are expected to be mid to high 20% compared with the reported fourth-quarter 2022 margin of 21%.
2023 Outlook
For 2023, the company expects general corporate expenses to be at the higher end of $215-$225 million. Interest expenses are now estimated to be between $70 million and $80 million.
Capital additions are estimated at an approximate value of $520 million and depreciation and amortization within $510-$520 million. The company projects an effective tax rate of 24-26% and a cash tax rate of 26-28% on adjusted earnings.
Zacks Rank & Recent Construction Releases
Owens Corning currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PulteGroup Inc. PHM reported mixed results in third-quarter 2023, wherein earnings surpassed the Zacks Consensus Estimates, but revenues missed the same. Both metrics increased year over year. The company has been banking on a solid operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
Backed by its disciplined and balanced business model, the company witnessed solid orders in the reported quarter and posted a 12-month return on equity of 30.1%.
Watsco, Inc. WSO reported better-than-expected third-quarter 2023 results, with earnings and revenues topping the Zacks Consensus Estimate.
Watsco delivered record sales and earnings per share, driven by solid HVAC equipment sales growth, improved residential unit volumes and strong price realization. Also, the commercial end markets remained healthy in the quarter.
Armstrong World Industries, Inc. AWI reported better-than-expected results for third-quarter 2023, wherein earnings and net sales topped the Zacks Consensus Estimate. Also, both metrics increased on a year-over-year basis.
AWI’s growth trend was backed by a solid increase in operating income and adjusted EBITDA, accompanied by expanded margins. This was fueled by positive contributions from the Mineral Fiber as well as Architectural Specialties segments. Despite the challenging macroeconomic conditions, the company delivered strong results attributable to its diversified end markets, consistent Mineral Fiber average unit value (AUV) growth and appealing growth initiatives.
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