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Owens Corning (OC) Stock Down 5% Despite Q4 Earnings Beat

Zacks Equity Research

Shares of Owens Corning OC declined more than 5% during yesterday’s trading session, despite reporting better-than-expected results in the fourth quarter of 2018. The decline is due to lower contribution from its Composites and Roofing business, along with tepid outlook for 2019.

The company reported adjusted earnings of $1.38 per share in the fourth quarter, beating 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.

Owens Corning Inc Price, Consensus and EPS Surprise

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

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.

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. Moreover, it anticipates favorable geographic mix along with a higher share of shipments.

In Composites, it expects growth in the glass fiber market, consistent with global industrial production improvement. The company projects increased volume and improved operating performance. However, higher inflation is likely to hamper its positive performance.

In Insulation, the company’s expectation for the North America residential fiberglass insulation business is in line with the prior year. It anticipates continued positive pricing momentum to be offset by lower volumes and production curtailments.  In the technical and other building insulation units, earnings are likely to grow on improved operating performance, and global construction and industrial insulation markets.

Owens Corning estimates an effective tax rate of 26-28%. The company expects general corporate expenses within $140-$150 million in 2019. It continues to expect strong conversion of adjusted earnings into free cash flow.

Zacks Rank & Peer Releases

Owens Corning currently carries a Zacks Rank #4 (Sell).

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

United Rentals URI reported fourth-quarter 2018 earnings of $4.85 per share, surpassing the Zacks Consensus Estimate of $4.77 by 1.7%. The reported earnings also increased 45.2% from the year-ago level of $3.34. Total revenues (Homebuilding, Forestar and Financial Services) came in at $2.31 billion. The figure surpassed the Zacks Consensus Estimate of $2.21 billion and also increased 20% year over year.

Meritage Homes Corporation MTH reported fourth-quarter 2018 earnings of $1.91 per share, surpassing the Zacks Consensus Estimate of $1.51 by 20.5%. The reported earnings also increased 120% from the year-ago level. Moreover, revenues in the Homebuilding segment increased 6.6% from the prior-year quarter to $1,008.8 million.

PulteGroup Inc. PHM reported fourth-quarter 2018 earnings of $1.11 per share, beating the consensus mark of $1.09 by 1.8%. The bottom line also improved 30.6% on a year-over-year basis. Total revenues of $2.99 billion surpassed the consensus estimate of $2.93 billion and also increased 7.3% on a year-over-year basis.

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